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Price discrimination through transactions bundling: The case of monopsony

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  • Dassiou, Xeni
  • Glycopantis, Dionysius

Abstract

This paper shows that for a price setting monopsony, offering to transact in a mixed bundle of goods of uncertain quality is profit enhancing. The magnitude of this enhancement relative to no bundling is greater the smaller the gap in the degree of quality uncertainty between the two goods purchased is. Moreover, contrary to coventional wisdom, the use of mixed purchase bundling by a monopsonist is trade enhancing. There is more room for a dramatic improvement in the volume of trade in a good with a low degree of quality certainty if its purchase is combined with a good of a substantially higher quality certainty.

Suggested Citation

  • Dassiou, Xeni & Glycopantis, Dionysius, 2008. "Price discrimination through transactions bundling: The case of monopsony," Journal of Mathematical Economics, Elsevier, vol. 44(7-8), pages 672-681, July.
  • Handle: RePEc:eee:mateco:v:44:y:2008:i:7-8:p:672-681
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    References listed on IDEAS

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    1. Indranil Chakraborty, 1999. "Bundling decisions for selling multiple objects," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 13(3), pages 723-733.
    2. Dassiou Xeni & Glycopantis Dionysious, 2006. "The Economic Theory of Price Discrimination via Transactions Bundling: An Assessment of the Policy Implications," Review of Law & Economics, De Gruyter, vol. 2(2), pages 323-348, October.
    3. Dassiou Xeni & Choi Chong Ju & Maldoom Dan, 2004. "Trade and Linked Exchange; Price Discrimination Through Transaction Bundling," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 4(1), pages 1-17, May.
    4. R. Preston McAfee & John McMillan & Michael D. Whinston, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, Oxford University Press, vol. 104(2), pages 371-383.
    5. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-859, September.
    6. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
    7. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
    8. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 159-187.
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    Cited by:

    1. Xeni Dassiou & Dionysius Glycopantis, 2012. "Optimal Decisions in Two-stage Bundling," Chapters,in: Recent Advances in the Analysis of Competition Policy and Regulation, chapter 5 Edward Elgar Publishing.

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