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Bundling by competitors and the sharing of profits

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  • GINSBURGH, Victor
  • ZANG, Israel

Abstract

We discuss the effects of bundling two goods offered by two symmetric firms. This situation requires the use of some sharing rule for the profits from the sales of the bundle. We show that the choice of this rule may have substantial effects on prices and profits – even if the possible rules eventually yield equal shares. In particular, the use of the a priori equal sharing rule yields lower prices and profits, than a price weighted sharing rule. When competitors bundle, they can implicitly cooperate via the setting of the profit sharing rule and increase their profits at the expense of consumers. This issue calls for some further attention by regulators.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2026.

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Handle: RePEc:cor:louvrp:-2026

Note: In : Economics Bulletin, 12(16), 1-9, 2007
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  1. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
  2. GINSBURGH, Victor & ZANG, Israël, 2002. "The museum pass game and its value," CORE Discussion Papers 2002041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Crawford, Gregory, 2005. "The Discriminatory Incentives to Bundle in the Cable Television Industry," Working paper 303, Regulation2point0.
  4. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages S211-30, January.
  5. Gregory S. Crawford, 2000. "The Impact of the 1992 Cable Act on Household Demand and Welfare," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 422-450, Autumn.
  6. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
  7. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
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Cited by:
  1. Mathias Dewatripont & Victor Ginsburgh & Patrick Legros & Alexis Walckiers & Jean-Pierre Devroey & Marianne Dujardin & Françoise Vandooren & Pierre Dubois & Jérôme Foncel & Marc Ivaldi & Marie-Domi, 2006. "Study on the economic and technical evolution of the scientific publication markets in Europe," ULB Institutional Repository 2013/9545, ULB -- Universite Libre de Bruxelles.

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