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Positive Effects of Bundling on Rival's Profit and Social Welfare in a Vertical Relationship

Author

Listed:
  • Qing Hu

    (Kushiro Public University of Economics)

  • Tomomichi Mizuno

    (Graduate School of Economics, Kobe University)

Abstract

The effects of bundling on the rival's profit and social welfare are analyzed in this paper. We consider a vertical relationship with an upstream firm offering inputs to two downstream firms. In the downstream market, one firm produces two products and can bundle them, while the other produces only one product. We find that bundling is preferred and can also increase the rival firm's profit and social welfare, which is in contrast to the conventional wisdom that profitable bundling never increases the profit of the rival and social welfare in a Cournot competition.

Suggested Citation

  • Qing Hu & Tomomichi Mizuno, 2021. "Positive Effects of Bundling on Rival's Profit and Social Welfare in a Vertical Relationship," Economics Bulletin, AccessEcon, vol. 41(1), pages 85-92.
  • Handle: RePEc:ebl:ecbull:eb-20-00220
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Bundling; vertical market; Cournot competition; duopoly;
    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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