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Optimal bundling under imperfect competition

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  • Vamosiu, Adriana

Abstract

This paper examines the profitability of bundling for a two-product seller of differentiated products facing competition from a one-product rival. In the presence of imperfect competition, Pure Bundling emerges as the optimal pricing strategy. Other than ensuring the monopoly product can only be purchased in a bundle, Pure Bundling's additional advantages stand in its ability to (i) prevent consumers from forming their own bundle using the single-product seller's product, (ii) reduce aggressiveness in pricing and (iii) smooth over the variation in valuations consumers have for the two types of products. However, the profit maximizing strategy is not welfare maximizing: consumers are best off when all products are available a la carte only, the competitor maximizes profits under Mixed Bundling, and total welfare would be highest if the two-product supplier were to offer only the monopoly product a la carte.

Suggested Citation

  • Vamosiu, Adriana, 2018. "Optimal bundling under imperfect competition," International Journal of Production Economics, Elsevier, vol. 195(C), pages 45-53.
    • Handle: RePEc:eee:proeco:v:195:y:2018:i:c:p:45-53
    DOI: 10.1016/j.ijpe.2017.09.016
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    Citations

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    Cited by:

    1. Guidon, Sergio & Wicki, Michael & Bernauer, Thomas & Axhausen, Kay, 2020. "Transportation service bundling – For whose benefit? Consumer valuation of pure bundling in the passenger transportation market," Transportation Research Part A: Policy and Practice, Elsevier, vol. 131(C), pages 91-106.
    2. Angelika Endres-Fröhlich & Joachim Heinzel, 2022. "The Impact of Product Qualities on Downstream Bundling in a Distribution Channel," Working Papers Dissertations 90, Paderborn University, Faculty of Business Administration and Economics.
    3. Angelika Endres-Fröhlich & Burkhard Hehenkamp & Joachim Heinzel, 2022. "The Impact of Product Differentiation on Retail Bundling in a Vertical Market," Working Papers Dissertations 91, Paderborn University, Faculty of Business Administration and Economics.
    4. Sarat Kumar Jena & Abhijeet Ghadge, 2022. "Product bundling and advertising strategy for a duopoly supply chain: a power-balance perspective," Annals of Operations Research, Springer, vol. 315(2), pages 1729-1753, August.
    5. Marjan Izadpanah & Ali Vaezi, 2023. "A Bundle Pricing Approach for Mobile Telecommunication Services: Method and Data Analysis," Journal of Emerging Trends in Marketing and Management, The Bucharest University of Economic Studies, vol. 1(3), pages 7-25, September.
    6. Lin, Xiaogang & Zhou, Yong-Wu & Xie, Wei & Zhong, Yuanguang & Cao, Bin, 2020. "Pricing and Product-bundling Strategies for E-commerce Platforms with Competition," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1026-1039.
    7. Vamosiu, Adriana, 2018. "Compatibility and bundling of stand and No stand-alone use complements," International Journal of Production Economics, Elsevier, vol. 201(C), pages 62-74.
    8. Joachim Heinzel, 2019. "Bundling in a Distribution Channel with Retail Competition," Working Papers CIE 120, Paderborn University, CIE Center for International Economics.

    More about this item

    Keywords

    Bundling; Imperfect competition; Welfare;
    All these keywords.

    JEL classification:

    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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