Strategic and welfare implications of product bundling under Bertrand competition
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.
Volume (Year): 32 (2012)
Issue (Month): 4 ()
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- Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
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