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Strategic and welfare implications of product bundling under Bertrand competition

Author

Listed:
  • Yang-Ming Chang

    (Kansas State University)

  • Hung-Yi Chen

    (Soochow University)

Abstract

This paper examines how Bertrand competition affects the welfare implications of bundling by a multi-product firm, which is a monopoly over one good and faces a single-product competitor in a second good. We find that the equilibrium bundle price is lower than the sum of the prices of the two goods sold separately. We also show that bundling benefits both firms but hurts consumers, despite that social welfare increases. Under price competition, bundling thus creates a conflict between the maximization of social welfare and consumer surplus.

Suggested Citation

  • Yang-Ming Chang & Hung-Yi Chen, 2012. "Strategic and welfare implications of product bundling under Bertrand competition," Economics Bulletin, AccessEcon, vol. 32(4), pages 2899-2907.
    • Handle: RePEc:ebl:ecbull:eb-12-00314
    as

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    References listed on IDEAS

    as
    1. Tyner, Wally & Adams, John, 1976. "Rural Electrification In India: Biogas Versus Large Scale Power," 1976 Annual Meeting, August 15-18, State College, Pennsylvania 283822, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    2. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(3), pages 475-498.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    commodity bundling; multiproduct firm; social welfare; Bertrand price competition;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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