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Versioning Goods and Joint Purchase: Substitution and Complementarity Strategies

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  • Francisco Martínez-Sánchez

Abstract

In the present paper, we develop a monopoly model of vertical product differentiation for analysing the monopolist's decision about the possibility of versioning goods as substitutes or complements when consumers can buy them simultaneously. In this context, we find that versioning goods as substitutes or complements is optimal for the monopolist if the cost of designing the bundle (the purchase of one unit of each version) is increasing, which implies that making variants of closer substitutes reduces costs. However, if making variants of closer substitutes is costly, the monopolist versions goods as complements only. The final result also depends on the degree of concavity and convexity of the cost function.

Suggested Citation

  • Francisco Martínez-Sánchez, 2016. "Versioning Goods and Joint Purchase: Substitution and Complementarity Strategies," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(5), pages 577-590.
    • Handle: RePEc:prg:jnlpep:v:2016:y:2016:i:5:id:575:p:577-590
    DOI: 10.18267/j.pep.575
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    More about this item

    Keywords

    market segmentation; price discrimination; complementarity; substitutes; joint purchase option; versioning information goods;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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