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Bundling by Competitors and the Sharing of Profits

Author

Listed:
  • Victor Ginsburgh

    (ECARES, Universite Libre de Bruxelles)

  • Israel Zang

    (The Academic College of Tel Aviv Jaffa)

Abstract

We discuss the effects of bundling two goods offered by two symmetric firms. This situation requires the use of some sharing rule for the profits from the sales of the bundle. We show that the choice of this rule may have substantial effects on prices and profits – even if the possible rules eventually yield equal shares. In particular, the use of the a priori equal sharing rule yields lower prices and profits, than a price weighted sharing rule. When competitors bundle, they can implicitly cooperate via the setting of the profit sharing rule and increase their profits at the expense of consumers. This issue calls for some further attention by regulators.

Suggested Citation

  • Victor Ginsburgh & Israel Zang, 2007. "Bundling by Competitors and the Sharing of Profits," Economics Bulletin, AccessEcon, vol. 12(16), pages 1-9.
    • Handle: RePEc:ebl:ecbull:eb-07l00003
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    References listed on IDEAS

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    1. Ginsburgh, Victor & Zang, Israel, 2003. "The museum pass game and its value," Games and Economic Behavior, Elsevier, vol. 43(2), pages 322-325, May.
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    Cited by:

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    2. Mark Armstrong, 2010. "Collection Sales: Good Or Bad For Journals?," Economic Inquiry, Western Economic Association International, vol. 48(1), pages 163-176, January.
    3. Luca Zanin, 2010. "The relationship between changes in the Economic Sentiment Indicator and real GDP growth: a time-varying coefficient approach," Economics Bulletin, AccessEcon, vol. 30(1), pages 837-846.

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    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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