Is Bundling Anticompetitive?
AbstractI analyze the implications of bundling on price competition in a market with complementary products. Using a model of imperfect competition with product differentiation, I identify the incentives to bundle for two types of demand functions and study how they change with the size of the bundle. With an inelastic demand, bundling creates an advantage over uncoordinated rivals who cannot improve by bundling. I show that this no longer holds with an elastic demand. The incentives to bundle are stronger and the market outcome is symmetric bundling, the most competitive one. Profits are lowest and consumer surplus is maximized.
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Bibliographic InfoPaper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2008-04.
Length: 33 pages
Date of creation: Mar 2008
Date of revision:
Publication status: Published by Ivie
Bundling; complementary goods; product differentiation;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-20 (All new papers)
- NEP-COM-2008-07-20 (Industrial Competition)
- NEP-IND-2008-07-20 (Industrial Organization)
- NEP-MIC-2008-07-20 (Microeconomics)
- NEP-MKT-2008-07-20 (Marketing)
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.:
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- Rey, Patrick & Seabright, Paul & Tirole, Jean, 2001. "The Activities of a Monopoly Firm in Adjacent Competitive Markets: Economic Consequences and Implications for Competition Policy," IDEI Working Papers 132, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2002.
- 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.
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