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Output Commitment through Product Bundling: Experimental Evidence

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Author Info

  • Jeroen Hinloopen

    (University of Amsterdam)

  • Wieland Mueller

    (Vienna University)

  • Hans-Theo Normann

    (Heinrich-Heine University)

Abstract

ABSTRACT: We analyze the impact of product bundling in experimental markets. One firm has monopoly power in a first market but competes with another firm in a second market. We compare treatments where the multiproduct firm (i) always bundles, (ii) never bundles, and (iii) chooses whether or not to bundle. We also contrast the simultaneous and the sequential order of moves in the duopoly market. Our data indicate support for the theory of product bundling: with bundling and simultaneous moves, the multiproduct firm offers the predicted number of units. When the multiproduct firm is the Stackelberg leader, the predicted equilibrium is better attained with bundling, especially when it chooses to bundle, even though in theory bundling should not make a difference here. In sum, bundling works as a commitment device that enables the transfer of market power from one market to another.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 11-170/1.

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Date of creation: 28 Nov 2011
Date of revision: 14 Jul 2013
Handle: RePEc:dgr:uvatin:20110170

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Web page: http://www.tinbergen.nl

Related research

Keywords: Cournot; commitment; experiments; product bundling; Stackelberg;

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Cited by:
  1. Silvester Van Koten & Andreas Ortmann, 2013. "Self-regulating organizations under the shadow of governmental oversight: An experimental investigation," Discussion Papers 2013-13, School of Economics, The University of New South Wales.

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