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Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products

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Author Info
R. Venkatesh (University of Pittsburgh)
Wagner Kamakura (Duke University)
Abstract

We develop an analytical model of contingent valuations and address two questions of import to a monopolist: (i) should a given pair of complements or substitutes be sold separately (pure components), together (pure bundling), or both (mixed bundling), and at what prices? (ii) How do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products? We find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal. Complements and substitutes should typically be priced higher than independently valued products.

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File URL: http://www.journals.uchicago.edu//cgi-bin/resolve?JB760201
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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 76 (2003)
Issue (Month): 2 (April)
Pages: 211-232
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Handle: RePEc:ucp:jnlbus:v:76:y:2003:i:2:p:211-232

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  1. Gupta, Abhay, 2007. "Measuring Quality Change due to Technological Externality in Multi-Feature Service Bundles," MPRA Paper 9284, University Library of Munich, Germany. [Downloadable!]
  2. Alexei Alexandrov, 2006. "Fat Products," Discussion Papers 1435, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  3. Timothy Gilbride & Joseph Guiltinan & Joel Urbany, 2008. "Framing effects in mixed price bundling," Marketing Letters, Springer, vol. 19(2), pages 125-139, June. [Downloadable!] (restricted)
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This page was last updated on 2009-12-2.

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