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Smaller Pie, Larger Slice: How Bargaining Power Affects the Decision to Bundle


  • Adilov Nodir

    () (Indiana University - Purdue University Fort Wayne)

  • Alexander Peter

    () (U.S. Federal Communications Commission)

  • Cunningham Brendan M.

    () (U.S. Naval Academy)


A cable operator chooses to bundle or provide programs a la carte by striking a balance between maximizing total surplus and minimizing transfer payments to program providers. Using general demand and cost functions, we show that a cable operator's decision to bundle maximizes total producer surplus if the cable operator's bargaining power is sufficiently high, and that a cable operator in a weak bargaining position might strategically choose to unbundle viewer channels in order to enhance its bargaining position with individual program suppliers, even when this decision reduces total surplus. It is, therefore, plausible that regulations to cap market share or impose a la carte on cable operators may reduce total surplus, and absent offsetting increases in consumer welfare, such policy measures may reduce total welfare. Under more restrictive conditions, we extend the analysis and show that consumer and social welfare under bundling or a la carte depends on both bargaining power and advertising rates. Our results imply a monopolist does not necessarily increase deadweight loss, and under certain circumstances a monopolist's bargaining outcomes yield higher social welfare.

Suggested Citation

  • Adilov Nodir & Alexander Peter & Cunningham Brendan M., 2012. "Smaller Pie, Larger Slice: How Bargaining Power Affects the Decision to Bundle," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-25, April.
  • Handle: RePEc:bpj:bejeap:v:12:y:2012:i:1:n:12

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    References listed on IDEAS

    1. Salinger, Michael A, 1995. "A Graphical Analysis of Bundling," The Journal of Business, University of Chicago Press, vol. 68(1), pages 85-98, January.
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    Cited by:

    1. Howell, Bronwyn E & Potgieter, Petrus H., 2017. "Competition and vertical/agglomeration effects in media mergers: bagging bundle benefits," 14th ITS Asia-Pacific Regional Conference, Kyoto 2017: Mapping ICT into Transformation for the Next Information Society 168487, International Telecommunications Society (ITS).
    2. Matsushima, Noriaki & Shinohara, Ryusuke, 2014. "What factors determine the number of trading partners?," Journal of Economic Behavior & Organization, Elsevier, vol. 106(C), pages 428-441.
    3. Howell, Bronwyn E. & Potgieter, Petrus H., 2017. "Triple-play (un)bundled pricing – cui bono?," 28th European Regional ITS Conference, Passau 2017 169466, International Telecommunications Society (ITS).

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