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The role of complementarity of goods in a mixed bundling strategy

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  • Carmen D. Ã lvarez-Albelo

Abstract

This paper studies optimal pricing when a monopolist firm produces two complementary goods and may undertake a bundling strategy. To do so, a modified version of Yan and Bandyopadhyay’s (2011) framework is used, in which the efficacy of the bundling strategy depends positively on the degree of complementarity of goods. Two main results are obtained. First, mixed bundling turns out to be the optimal strategy for the firm, since it yields higher profits than pure unbundling and pure bundling. Second, sales and profits from the bundling (unbundling) strategy increase (decrease) as the products become more complementary, which entails an empirically sensible behavior.

Suggested Citation

  • Carmen D. Ã lvarez-Albelo, 2020. "The role of complementarity of goods in a mixed bundling strategy," Economics and Business Letters, Oviedo University Press, vol. 9(1), pages 31-40.
    • Handle: RePEc:ove:journl:aid:13895
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    File URL: https://reunido.uniovi.es/index.php/EBL/article/view/13895
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