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Curing Sinus Headaches and Tying Law: An Empirical Analysis of Bundling Decongestants and Pain Relievers

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Author Info
David S. Evans ()
Michael Salinger ()

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Abstract

We apply and extend the cost-based approach to bundling and tying under competition developed in Evans and Salinger (2004) to over-the-counter pain relievers and cold medicines. We document that consumers pay much less for tablets with multiple ingredients than they would if they bought tablets with each ingredient separately. We then decompose the sources of these savings into marginal cost savings and a component that reflects fixed costs of product offerings. The analysis both documents substantial economies of bundling and illustrates the sort of cost analysis that is necessary for understanding tying.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1519.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1519

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L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Samples)," NBER Working Papers 10506, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Miravete, Eugenio J, 2004. "Are all those Calling Plans Really Necessary? The Limited Gains From Complex Tariffs," CEPR Discussion Papers 4237, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Timothy F. Bresnahan & Peter C. Reiss, 1987. "Do Entry Conditions Vary across Markets?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1987-3), pages 833-882. [Downloadable!]
  4. Chaim Fershtman & Ariel Pakes, 2000. "A Dynamic Oligopoly with Collusion and Price Wars," RAND Journal of Economics, The RAND Corporation, vol. 31(2), pages 207-236, Summer.
    Other versions:
  5. Morrison, Steven A & Winston, Clifford, 1987. "Empirical Implications and Tests of the Contestability Hypothesis," Journal of Law & Economics, University of Chicago Press, vol. 30(1), pages 53-66, April.
  6. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Blackwell Publishing, vol. 62(1), pages 53-82, January. [Downloadable!] (restricted)
  7. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
  8. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, vol. 25(4), pages 555-589, Winter. [Downloadable!] (restricted)
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  9. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 41-78, March. [Downloadable!] (restricted)
  10. Evans, David S & Padilla, Atilano Jorge, 2004. "Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach," CEPR Discussion Papers 4625, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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