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Competitive mixed bundling of vertically differentiated products

Author

Listed:
  • Illtae Ahn

    (Department of Economics, Chung-Ang University, Seoul, Republic of Korea)

  • Kiho Yoon

    (Department of Economics, Korea University, Seoul, Republic of Korea)

Abstract

We examine mixed bundling in a competitive environment that incorporates vertical product differentiation. We show that, compared to the equilibrium without bundling, (i) prices, profits and social welfare are lower, whereas (ii) consumer surplus is higher in the equilibrium with mixed bundling. In addition, the population of consumers who purchase both products from the same firm is larger in the equilibrium with mixed bundling. Further, when the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease but social welfare and consumer surplus increase. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates.

Suggested Citation

  • Illtae Ahn & Kiho Yoon, 2011. "Competitive mixed bundling of vertically differentiated products," Discussion Paper Series 1101, Institute of Economic Research, Korea University.
    • Handle: RePEc:iek:wpaper:1101
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    mixed bundling; vertical differentiation; quality advantage; competitive bundling;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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