Optimal Bundling of Technological Products with Network Externality
AbstractFor many high-tech and Internet-related products, utility to consumers depends in part on the size of the user base, a phenomenon called network externality. A firm with a portfolio of these and other products--that are often asymmetric in their degree of network externality or marginal cost--may have to look beyond the traditional strategies of pure components, pure bundling, and mixed bundling. One such strategic alternative in a two-product case would be a so-called mixed bundling-1 under which the bundle and product 1 are offered, but the other product can only be purchased in a bundled form. The purpose of this study is to compare and contrast the impact of such asymmetry or symmetry in (direct) network externality and cost on the choice of bundling strategies. We model a monopolist firm that has a product in each of two categories and faces heterogeneous consumers. Results suggest that pure bundling is more profitable when both products have low marginal costs or high network externality whereas pure components or mixed bundling-1 is more profitable when the products diverge in their costs and network externality (e.g., only one product has network externality). Traditional mixed bundling is optimal in other instances.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 56 (2010)
Issue (Month): 12 (December)
bundling; network externality; pricing; high technology; eCommerce;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Delanote, Stephanie & Leus, Roel & Talla Nobibon, Fabrice, 2012. "Optimization of the annual planning of targeted offers in direct marketing," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/364809, Katholieke Universiteit Leuven.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.