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Bundling and competition for slots: Sequential pricing

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  • Doh-Shin Jeon
  • Domenico Menicucci

Abstract

In this paper we study, as in Jeon-Menicucci (2009), competition between sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. This paper considers sequential pricing and complements our main paper (Jeon- Menicucci, 2009) that considers simultaneous pricing. First, Jeon-Menicucci (2009) find that under simultaneous individual pricing, equilibrium often does not exist and hence the outcome is often inefficient. By contrast, equilibrium always exists under sequential individual pricing and we characterize it in this paper. We find that each seller faces a trade-off between the number of slots he occupies and surplus extraction per product, and there is no particular reason that this leads to an efficient allocation of slots. Second, Jeon-Menicucci (2009) find that when bundling is allowed, there always exists an efficient equilibrium but inefficient equilibria can also exist due to pure bundling (for physical products) or slotting contracts. Under sequential pricing, we find that all equilibria are efficient regardless of whether firms can use slotting contracts, and both for digital goods and for physical goods. Therefore, sequential pricing presents an even stronger case for laissez-faire in the matter of bundling than simultaneous pricing.

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1168.

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Date of creation: Aug 2009
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Handle: RePEc:upf:upfgen:1168

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Bundling; Portfolios; Slots (or Shelf Space); Pure Bundling; Slotting Contracts;

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Cited by:
  1. Jeon, Doh-Shin & Menicucci, Domenico, 2009. "Bundling and Competition for Slots: On the Portfolio Effects of Bundling," TSE Working Papers 09-069, Toulouse School of Economics (TSE), revised Jul 2011.

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