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

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  • David S. Evans
  • Michael Salinger

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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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1519.

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

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  1. Fershtman, C. & Pakes, A., 1998. "A Dynamic Oligopoly with Collusion and Price Wars," Papers 26-98, Tel Aviv.
  2. Ariel Pakes & Paul McGuire, 1992. "Computing Markov Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," NBER Technical Working Papers 0119, National Bureau of Economic Research, Inc.
  3. 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.
  4. David S. Evans & Michael A. Salinger, 2008. "THE ROLE OF COST IN DETERMINING WHEN FIRMS OFFER BUNDLES -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(1), pages 143-168, 03.
  5. Ariel Pakes & Michael Ostrovsky & Steve Berry, 2004. "Simple Estimators for the Parameters of Discrete Dynamic Games (with Entry/Exit Examples)," Harvard Institute of Economic Research Working Papers 2036, Harvard - Institute of Economic Research.
  6. Crawford, Gregory, 2005. "The Discriminatory Incentives to Bundle in the Cable Television Industry," Working paper 303, Regulation2point0.
  7. Morrison, Steven A & Winston, Clifford, 1987. "Empirical Implications and Tests of the Contestability Hypothesis," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 53-66, April.
  8. Ericson, Richard & Pakes, Ariel, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 53-82, January.
  9. 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.
  10. 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.
  11. 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(3), pages 833-882.
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