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Option Package Bundling

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  • Takanori Adachi

    (School of Economics Nagoya University)

  • Takeshi Ebina

    (School of Management Tokyo University of Science)

  • Makoto Hanazono

    (School of Economics Nagoya University)

Abstract

This paper analyzes the optimality of package bundling by focusing on the ?main and accessory?relationship between two goods. In particular, we consider option package bundling in which an optional good is valuable only if it is consumed together with a certain (nonoptional) base good. We develop a model of option package bundling for a monopolist in which buyers?valuations are independently and uniformly distributed. We also allow inter-relationship between valuations by assuming that the reservation value of the bundle can be greater or less than the sum of the innate value of both goods. Our analysis observes that mixed bundling, in which the base good is sold with or without the optional good, yields a higher pro?t than pure bundling if and only if the range of the optional good valuation exceeds a threshold value. We then conduct a welfare analysis of the bundling choice. The result is surprising: pure bundling is always desirable from the social welfare viewpoint when a monopolist chooses mixed bundling.

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP785.pdf
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Bibliographic Info

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 785.

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Date of creation: Oct 2011
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Handle: RePEc:kyo:wpaper:785

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Related research

Keywords: Multiproduct monopoly; Bundling; Optional goods; Interdepen-dent valuations.;

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References

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  1. 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.
  2. Armstrong, M., 1996. "Price discrimination by a many-product firm," Discussion Paper Series In Economics And Econometrics 9628, Economics Division, School of Social Sciences, University of Southampton.
  3. Fang,H. & Norman,P., 2003. "To bundle or not to bundle," Working papers 18, Wisconsin Madison - Social Systems.
  4. Motta,Massimo, 2004. "Competition Policy," Cambridge Books, Cambridge University Press, number 9780521016919, October.
  5. Doh-Shin Jeon & Domenico Menicucci, 2007. "Bundling and Competition for Slots," Working Papers 07-15, NET Institute, revised Sep 2007.
  6. Salinger, Michael A, 1995. "A Graphical Analysis of Bundling," The Journal of Business, University of Chicago Press, vol. 68(1), pages 85-98, January.
  7. Crawford, Gregory S & Yurukoglu, Ali, 2011. "The Welfare Effects of Bundling in Multichannel Television Markets," CEPR Discussion Papers 8370, C.E.P.R. Discussion Papers.
  8. Crawford, Gregory, 2005. "The Discriminatory Incentives to Bundle in the Cable Television Industry," Working paper 303, Regulation2point0.
  9. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
  10. John Thanassoulis, 2007. "Competitive Mixed Bundling and Consumer Surplus," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 16(2), pages 437-467, 06.
  11. 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.
  12. John C. Eckalbar, 2010. "Closed-Form Solutions to Bundling Problems," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 513-544, 06.
  13. Evans, David S. & Nichols, Albert L. & Schmalensee, Richard L., 2005. "U.S. vs. Microsoft: Did Consumers Win?," Working paper 109, Regulation2point0.
  14. repec:rje:randje:v:37:y:2006:i:4:p:946-963 is not listed on IDEAS
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Cited by:
  1. Takanori Adachi & Takeshi Ebina, 2014. "Complementing Cournot’s analysis of complements: unidirectional complementarity and mergers," Journal of Economics, Springer, vol. 111(3), pages 239-261, April.

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