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Bundling With Quality Choice

Author

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  • CHUNG, HUI-LING
  • CHEN, HUNG-YI
  • HU, JIN-LI
  • LIN, YAN-SHU

Abstract

Antitrust authorities consider commodity bundling as an extension of monopoly power to other markets which harms consumers. This paper analyzes quality competition and its effect on consumer surplus for the case of commodity bundling by a multi-product firm in a vertically differentiated industry. When the firm bundles a high quality good, we show that bundling negatively affects the quality of a competing good, consumer surplus, and welfare. When the firm bundles a low quality good instead, bundling raises the quality of a competing good, enhances consumer surplus, and may increase the welfare.

Suggested Citation

  • Chung, Hui-Ling & Chen, Hung-Yi & Hu, Jin-Li & Lin, Yan-Shu, 2014. "Bundling With Quality Choice," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 55(2), pages 147-165, December.
    • Handle: RePEc:hit:hitjec:v:55:y:2014:i:2:p:147-165
    DOI: 10.15057/26969
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    References listed on IDEAS

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    2. Eugen Kovac, 2005. "Tying and entry deterrence in vertically differentiated markets," CERGE-EI Working Papers wp266, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    3. Martin, Stephen, 1999. "Strategic and welfare implications of bundling," Economics Letters, Elsevier, vol. 62(3), pages 371-376, March.
    4. Jay Pil Choi, 2004. "Tying and innovation: A dynamic analysis of tying arrangements," Economic Journal, Royal Economic Society, vol. 114(492), pages 83-101, January.
    5. Motta, Massimo, 1993. "Endogenous Quality Choice: Price vs. Quantity Competition," Journal of Industrial Economics, Wiley Blackwell, vol. 41(2), pages 113-131, June.
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    10. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, vol. 32(1), pages 52-71, Spring.
    11. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
    12. Sheshinski, Eytan, 1976. "Price, Quality and Quantity Regulation in Monopoly Situations," Economica, London School of Economics and Political Science, vol. 43(17), pages 127-137, May.
    13. Bruce H. Kobayashi, 2005. "Does Economics Provide A Reliable Guide To Regulating Commodity Bundling By Firms? A Survey Of The Economic Literature," Journal of Competition Law and Economics, Oxford University Press, vol. 1(4), pages 707-746.
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    Cited by:

    1. Hui‐Ling Chung & Jin‐Li Hu & Yan‐Shu Lin, 2022. "The leverage effect of bundling on monopoly power and product quality," Manchester School, University of Manchester, vol. 90(6), pages 668-688, December.
    2. Sava Diana Cristina & Badulescu Alina, 2016. "The Major Influence Of The Level Of Education In The Creative Economy," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 1, pages 69-75, February.

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    More about this item

    Keywords

    bundling; vertical product differentiation; optimal quality; consumer surplus; leverage theory;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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