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Nested Bundling

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  • Frank Yang

Abstract

A nested bundling strategy creates menus in which more expensive bundles include all the goods of less expensive ones. We study when nested bundling is optimal and determine which nested menu is optimal, when consumers differ in one dimension. We define a partial order on bundles by (i) set inclusion and (ii) sales quantity when sold alone. We show that, under quasi-concavity assumptions, if the undominated bundles with respect to this partial order are nested, then nested bundling is optimal. We present an iterative algorithm that identifies the minimal optimal menu consisting of a subset of the undominated bundles.

Suggested Citation

  • Frank Yang, 2025. "Nested Bundling," American Economic Review, American Economic Association, vol. 115(9), pages 2970-3013, September.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:9:p:2970-3013
    DOI: 10.1257/aer.20230455
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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