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Bundling Commodities and Attached Services with Nonlinear Pricing

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  • Marion Podesta
  • Jean-Christophe Poudou

Abstract

This paper analyzes optimal nonlinear pricing for a monopoly supplying a bundle of a commodity and a related service, where the consumers’ private information is captured by scalar variable. With constant marginal costs, we find the standard result where the good and the service in the bundle are lower than separately. However, under the increasing cost assumption, when the degree of the complementarity becomes sufficiently high, the marginal price of separate good is lower than the good price in the bundle. Contrary to Martimort (1992), when good and service are perfectly complementary, we can not conclude that it is costly for consumers to sign two contracts from different shops than to buy the bundle. Because of asymmetric properties in the utility function, profitability result of bundling strategy depends, on the one hand, on the degree of complementarity between commodity and related service and on the other hand, on the degree of the optional service.
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Suggested Citation

  • Marion Podesta & Jean-Christophe Poudou, 2012. "Bundling Commodities and Attached Services with Nonlinear Pricing," Recherches économiques de Louvain, De Boeck Université, vol. 78(2), pages 25-52.
  • Handle: RePEc:cai:reldbu:rel_782_0025
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    Keywords

    bundling; nonlinear pricing; energy market;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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