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Bundling and quality assurance

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  • James D. Dana
  • Kathryn E. Spier

Abstract

With imperfect private monitoring, a firm selling two experience goods can increase both producer and consumer surplus by bundling. Bundling constrains consumers to buy two products, making consumers better informed and ensuring that they use tougher punishment strategies. Both increased monitoring and increased punishment benefit other consumers, so bundling overcomes a free†rider problem. The social value of bundling is even larger if consumers cannot attribute a negative signal to the specific product that generated it, or if one of the two goods is a durable and the other is a complementary nondurable. Our results are robust to mixed bundling.

Suggested Citation

  • James D. Dana & Kathryn E. Spier, 2018. "Bundling and quality assurance," RAND Journal of Economics, RAND Corporation, vol. 49(1), pages 128-154, March.
    • Handle: RePEc:bla:randje:v:49:y:2018:i:1:p:128-154
    DOI: 10.1111/1756-2171.12222
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    Cited by:

    1. Jorge Padilla & Joe Perkins & Salvatore Piccolo, 2022. "Self‐Preferencing in Markets with Vertically Integrated Gatekeeper Platforms," Journal of Industrial Economics, Wiley Blackwell, vol. 70(2), pages 371-395, June.
    2. Klerman, Daniel & de Figueiredo, Miguel F.P., 2021. "Reputational economies of scale," International Review of Law and Economics, Elsevier, vol. 65(C).
    3. J.-P. Niinimäki, 2023. "Experience Goods, Umbrella Branding, and Reputation," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(1), pages 33-44, February.

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