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Is Bundling Anticompetitive?

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  • Ioana Chioveanu

    ()
    (Universidad de Alicante)

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    Abstract

    I 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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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2008-04.pdf
    File Function: Fisrt version / Primera version, 2008
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    Bibliographic Info

    Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2008-04.

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    Length: 33 pages
    Date of creation: Mar 2008
    Date of revision:
    Publication status: Published by Ivie
    Handle: RePEc:ivi:wpasad:2008-04

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    Related research

    Keywords: Bundling; complementary goods; product differentiation;

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    References

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    1. Xavier Vives, 2001. "Oligopoly Pricing: Old Ideas and New Tools," MIT Press Books, The MIT Press, edition 1, volume 1, number 026272040x, December.
    2. Economides, Nicholas & Salop, Steven C, 1992. "Competition and Integration among Complements, and Network Market Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 105-23, March.
    3. 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.
    4. Barry Nalebuff, 2000. "Competing Against Bundles," Yale School of Management Working Papers ysm157, Yale School of Management.
    5. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
    6. 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.
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