IDEAS home Printed from https://ideas.repec.org/p/ulb/ulbeco/2013-7280.html
   My bibliography  Save this paper

Bundling by competitors and the sharing of profits

Author

Listed:
  • Victor Ginsburgh
  • ISRAEL Zang

Abstract

We discuss the welfare effects of bundling two products offered by two symmetric firms. We first show that, in terms of welfare, a monopoly does better than a duopoly in which each firm sell its good and that a monopoly selling the bundle does better than if it sells the bundle and the two goods separately. We also show that the choice of the mechanism for sharing the profits, obtained from the sales of the bundle, might have dramatic positive or negative effects even when the various optional mechanisms yield equal splits. In particular, the use of the Shapley value yields the highest total and consumer surpluses and the lowest producer surplus, while the weighted Shapley value totally reverses the outcome and yields profits which are very close (over 99 pourcent) to the full monopoly profits. Hence, as in the case of bundling by a monopolist, when competitors bundle they assist each other in deterring entry. However, in addition when competitors bundle, they can implicitly cooperate via the setting of the profit sharing rule and increase their profits at the expense of customers. This issue calls for some further attention by regulators.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Victor Ginsburgh & ISRAEL Zang, 2007. "Bundling by competitors and the sharing of profits," ULB Institutional Repository 2013/7280, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/7280
    as

    Download full text from publisher

    File URL: https://dipot.ulb.ac.be/dspace/bitstream/2013/7280/1/bundling.pdf
    File Function: bundling
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Ginsburgh, Victor & Zang, Israel, 2003. "The museum pass game and its value," Games and Economic Behavior, Elsevier, vol. 43(2), pages 322-325, May.
    2. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 159-187.
    3. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics (QME), Springer, vol. 6(1), pages 41-78, March.
    4. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    5. A. Michael Spence, 1980. "Multi-Product Quantity-Dependent Prices and Profitability Constraints," Review of Economic Studies, Oxford University Press, vol. 47(5), pages 821-841.
    6. Gregory S. Crawford, 2000. "The Impact of the 1992 Cable Act on Household Demand and Welfare," RAND Journal of Economics, The RAND Corporation, vol. 31(3), pages 422-450, Autumn.
    7. 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.
    8. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Mathias Dewatripont & Victor Ginsburgh & Patrick Legros & Alexis Walckiers & Jean-Pierre Devroey & Marianne Dujardin & Françoise Vandooren & Pierre Dubois & Jérôme Foncel & Marc Ivaldi & Marie-Dominiq, 2006. "Study on the economic and technical evolution of the scientific publication markets in Europe," ULB Institutional Repository 2013/9545, ULB -- Universite Libre de Bruxelles.
    2. Mark Armstrong, 2010. "Collection Sales: Good Or Bad For Journals?," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 163-176, January.
    3. Luca Zanin, 2010. "The relationship between changes in the Economic Sentiment Indicator and real GDP growth: a time-varying coefficient approach," Economics Bulletin, AccessEcon, vol. 30(1), pages 837-846.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:ebl:ecbull:v:12:y:2007:i:16:p:1-9 is not listed on IDEAS
    2. Ashutosh Prasad & R. Venkatesh & Vijay Mahajan, 2017. "Temporal product bundling with myopic and strategic consumers: Manifestations and relative effectiveness," Quantitative Marketing and Economics (QME), Springer, vol. 15(4), pages 341-368, December.
    3. Anja Lambrecht & Katja Seim & Naufel Vilcassim & Amar Cheema & Yuxin Chen & Gregory Crawford & Kartik Hosanagar & Raghuram Iyengar & Oded Koenigsberg & Robin Lee & Eugenio Miravete & Ozge Sahin, 2012. "Price discrimination in service industries," Marketing Letters, Springer, vol. 23(2), pages 423-438, June.
    4. Tarek Abdallah, 2019. "On the Benefit (Or Cost) of Large‐Scale Bundling," Production and Operations Management, Production and Operations Management Society, vol. 28(4), pages 955-969, April.
    5. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, in: Mark Armstrong & Robert Porter (ed.), Handbook of Industrial Organization, edition 1, volume 3, chapter 34, pages 2221-2299, Elsevier.
    6. Zhou, Jidong, 2021. "Mixed bundling in oligopoly markets," Journal of Economic Theory, Elsevier, vol. 194(C).
    7. Gastón Llanes & Andrea Mantovani & Francisco Ruiz-Aliseda, 2019. "Entry into Complementary Good Markets with Network Effects," Strategy Science, INFORMS, vol. 4(4), pages 262-282, December.
    8. Sang‐Hyun Kim & Jong‐Hee Hahn, 2022. "On the profitability of interfirm bundling in oligopolies," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 657-673, August.
    9. Bong‐Ju Kim & Inho Chung, 2010. "Inter‐Market Competition Through Bundling In The Presence Of Cost Advantage," The Japanese Economic Review, Japanese Economic Association, vol. 61(1), pages 116-132, March.
    10. Hanming Fang & Peter Norman, 2006. "To bundle or not to bundle," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 946-963, December.
    11. Jidong Zhou, 2017. "Competitive Bundling," Econometrica, Econometric Society, vol. 85, pages 145-172, January.
    12. Gregory S. Crawford & Ali Yurukoglu, 2012. "The Welfare Effects of Bundling in Multichannel Television Markets," American Economic Review, American Economic Association, vol. 102(2), pages 643-685, April.
    13. Gayer, Amit & Shy, Oz, 2016. "A welfare evaluation of tying strategies," Research in Economics, Elsevier, vol. 70(4), pages 623-637.
    14. Andrea Mantovani, 2013. "The Strategic Effect of Bundling: A New Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 25-43, February.
    15. Kopczewski, Tomasz & Sobolewski, Maciej & Miernik, Ireneusz, 2018. "Bundling or unbundling? Integrated simulation model of optimal pricing strategies," International Journal of Production Economics, Elsevier, vol. 204(C), pages 328-345.
    16. Reisinger, Markus, 2004. "The Effects of Product Bundling in Duopoly," Discussion Papers in Economics 477, University of Munich, Department of Economics.
    17. 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.
    18. Timothy Derdenger & Vineet Kumar, 2013. "The Dynamic Effects of Bundling as a Product Strategy," Marketing Science, INFORMS, vol. 32(6), pages 827-859, November.
    19. Prasad, Ashutosh & Venkatesh, R. & Mahajan, Vijay, 2015. "Product bundling or reserved product pricing? Price discrimination with myopic and strategic consumers," International Journal of Research in Marketing, Elsevier, vol. 32(1), pages 1-8.
    20. Ashutosh Prasad & R. Venkatesh & Vijay Mahajan, 2010. "Optimal Bundling of Technological Products with Network Externality," Management Science, INFORMS, vol. 56(12), pages 2224-2236, December.
    21. Marie-Noëlle Calès & Laurent Granier & Nadège Marchand, 2012. "Competition between Clearing Houses on the European Market," Post-Print halshs-00959121, HAL.

    More about this item

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ulb:ulbeco:2013/7280. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Benoit Pauwels (email available below). General contact details of provider: https://edirc.repec.org/data/ecsulbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.