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Bundling revisited: substitute products and inter-firm discounts

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  • Armstrong, Mark

Abstract

This 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.

Suggested Citation

  • Armstrong, Mark, 2010. "Bundling revisited: substitute products and inter-firm discounts," MPRA Paper 26782, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:26782
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    References listed on IDEAS

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    Cited by:

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    2. Sun, Yiqi & Wu, Zhengping & Zhu, Wanshan, 2022. "When do firms benefit from joint price and lead-time competition?," European Journal of Operational Research, Elsevier, vol. 302(2), pages 497-517.
    3. Correa, Alexander, 2020. "Empaquetamiento e incentivos para mejoras en calidad || Packaging and quality improvements," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 30(1), pages 163-195, December.
    4. Guy Laroque & Nicola Pavoni, 2017. "Optimal taxation in occupational choice models: An Application to the Work Decisions of Couples," Working Papers hal-03915322, HAL.
    5. Neil Gandal & Sarit Markovich & Michael H. Riordan, 2018. "Ain't it “suite”? Bundling in the PC office software market," Strategic Management Journal, Wiley Blackwell, vol. 39(8), pages 2120-2151, August.

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    More about this item

    Keywords

    Price discrimination; bundling; oligopoly; loyalty pricing;
    All these keywords.

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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