A more general theory of commodity bundling
AbstractThis paper extends the standard model of bundling as a price discrimination device 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 a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. Product substitutability typically gives an integrated firm a greater incentive to offer a bundle discount (relative to the model with additive preferences), while substitutability is often the sole reason why separate sellers wish to offer inter-firm discounts. When separate sellers coordinate on an inter-firm discount, they can use the discount to overturn product substitutability and relax competition.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 37375.
Date of creation: Mar 2012
Date of revision:
Price discrimination; bundling; oligopoly;
Other versions of this item:
- Mark Armstrong, 2012. "A More General Theory of Commodity Bundling," Economics Series Working Papers, University of Oxford, Department of Economics 624, University of Oxford, Department of Economics.
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D4 - Microeconomics - - Market Structure and Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-28 (All new papers)
- NEP-BEC-2012-03-28 (Business Economics)
- NEP-COM-2012-03-28 (Industrial Competition)
- NEP-IND-2012-03-28 (Industrial Organization)
- NEP-MIC-2012-03-28 (Microeconomics)
- NEP-MKT-2012-03-28 (Marketing)
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