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Bundling and joint marketing by rival firms

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  • Jeitschko, Thomas D.
  • Jung, Yeonjei
  • Kim, Jaesoo

Abstract

We study joint marketing arrangements by competing firms who engage in price discrimination between consumers who patronize only one firm (single purchasing) and those who purchase from both competitors (bundle purchasers). Two types of joint marketing are considered. Firms either commit to a component-price that applies to bundle-purchasers and then firms set stand-alone prices for single purchasers; or firms commit to a rebate off their stand alone price that will be applied to bundle-purchasers, and then firms set their stand alone prices. Both methods allow firms to raise prices and earn higher profits. However, the effect of price discrimination on social welfare depends on how prices are chosen. The rebate joint marketing scheme increases joint purchasing, whereas bundle pricing diminishes bundle purchases. If the marginal social value of a bundle over a single purchase is large, the former increases total welfare. However, welfare can also increase with bundle pricing compared to non-discriminatory pricing. --

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Bibliographic Info

Paper provided by Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE) in its series DICE Discussion Papers with number 144.

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Date of creation: 2014
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Handle: RePEc:zbw:dicedp:144

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Related research

Keywords: Bundling; Joint Marketing; Price Discrimination;

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  1. Jeitschko Thomas D. & Zhang Nanyun, 2014. "Adverse Effects of Patent Pooling on Product Development and Commercialization," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 31, January.
  2. Rey, Patrick & Tirole, Jean, 2013. "Cooperation vs. Collusion: How Essentiality Shapes Co-opetition," TSE Working Papers 13-439, Toulouse School of Economics (TSE).
  3. Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
  4. Leonard K. Cheng & Jae Nahm, 2007. "Product boundary, vertical competition, and the double mark-upproblem," RAND Journal of Economics, RAND Corporation, vol. 38(2), pages 447-466, 06.
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