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The Strategic Effect of Bundling: A New Perspective

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  • Andrea Mantovani

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Abstract

This paper investigates the strategic effect of the bundling strategy that is adopted by a multi-product firm that produces two complementary goods and faces one single-product rival in each market. I consider both the Cournot and Bertrand cases. When firms compete in quantities, bundling is completely ineffective. Under price competition, selling as a package is profitable when market competition is particularly tough. In such circumstances, the multi-product firm resorts to bundling to dampen the negative impact of low brand differentiation and/or scarce product complementarity. However, overall prices increase as a result of bundling, and not only consumer surplus, but also total social welfare, shrink. Copyright Springer Science+Business Media New York 2013

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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 42 (2013)
Issue (Month): 1 (February)
Pages: 25-43

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Handle: RePEc:kap:revind:v:42:y:2013:i:1:p:25-43

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Web page: http://www.springerlink.com/link.asp?id=100336

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Keywords: Bundling; Strategic effect; Cournot and Bertrand competition;

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