The Strategic Effect of Bundling: A New Perspective
AbstractThis 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 InfoArticle provided by Springer in its journal Review of Industrial Organization.
Volume (Year): 42 (2013)
Issue (Month): 1 (February)
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Web page: http://www.springerlink.com/link.asp?id=100336
Bundling; Strategic effect; Cournot and Bertrand competition;
Other versions of this item:
- A. Mantovani, 2010. "The strategic effect of bundling: a new perspective," Working Papers 705, Dipartimento Scienze Economiche, Universita' di Bologna.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
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