Bundling revisited: substitute products and inter-firm discounts
AbstractThis paper extends the standard model of bundling to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce bundling discounts when demand for the bundle is elastic relative to demand for stand-alone products. Separate firms often have a unilateral incentive to offer inter-firm bundle discounts, although this depends on the detailed form of substitutability. Bundle discounts mitigate the innate substitutability of products, which can relax competition between firms and induce an integrated firm to lower all of its prices when it follows a bundling strategy.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26782.
Date of creation: Nov 2010
Date of revision:
Price discrimination; bundling; oligopoly; loyalty pricing;
Other versions of this item:
- Mark Armstrong, 2011. "Bundling Revisited: Substitute Products and Inter-Firm Discounts," Economics Series Working Papers 574, University of Oxford, Department of Economics.
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-27 (All new papers)
- NEP-BEC-2010-11-27 (Business Economics)
- NEP-COM-2010-11-27 (Industrial Competition)
- NEP-MKT-2010-11-27 (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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Economics Series Working Papers
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