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Optimal Bundling Strategies in Multiobject Auctions of Complements or Substitutes

Author

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  • Ramanathan Subramaniam

    (University of Kansas School of Business, Lawrence, Kansas 66045)

  • R. Venkatesh

    (Joseph M. Katz Graduate School of Business, University of Pittsburgh, Pittsburgh, Pennsylvania 15260)

Abstract

We consider a problem at the interface of auctions and bundling. Our revenue-maximizing seller seeking to auction one unit each of two complements or substitutes in the best-of-three formats: the auction of the bundle, separate auctions of the individual items, and a combinatorial auction. We draw on an analytical model to address the following questions: (i) Which of the auctioning strategies is optimal under the second-price, sealed-bid format? (ii) What is the optimal strategy for the bidders? (iii) When the objects are asymmetrically valued (e.g., Super Bowl ticket versus souvenir), what is the optimal auctioning sequence under the pure components strategy? Our results suggest that separate auctions of the two objects are superior to the auction of the bundle for most substitutes and even moderate complements when there are at least four bidders. The auction of the pure bundle is better suited for strong complements or with too few bidders. When the combinatorial auction is an available option, it weakly dominates the auction of the pure bundle but has domains of inferiority relative to the separate auctions. When the objects are asymmetric in value, it is optimal to auction the higher-valued object first.

Suggested Citation

  • Ramanathan Subramaniam & R. Venkatesh, 2009. "Optimal Bundling Strategies in Multiobject Auctions of Complements or Substitutes," Marketing Science, INFORMS, vol. 28(2), pages 264-273, 03-04.
  • Handle: RePEc:inm:ormksc:v:28:y:2009:i:2:p:264-273
    DOI: 10.1287/mksc.1080.0394
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    References listed on IDEAS

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    2. Onur, Ilke & Bruwer, Johan & Lockshin, Larry, 2020. "Reducing information asymmetry in the auctioning of non-perishable experience goods: The case of online wine auctions," Journal of Retailing and Consumer Services, Elsevier, vol. 54(C).
    3. Hanaki, Nobuyuki & Hayashi, Takashi & Lombardi, Michele & Ogawa, Kazuhito, 2021. "Partial equilibrium mechanism and inter-sectoral coordination: An experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 190(C), pages 366-389.
    4. Dass, Mayukh & Reddy, Srinivas K. & Iacobucci, Dawn, 2014. "A Network Bidder Behavior Model in Online Auctions: A Case of Fine Art Auctions," Journal of Retailing, Elsevier, vol. 90(4), pages 445-462.
    5. Cao, Qingning & Geng, Xianjun & Zhang, Jun, 2015. "Strategic Role of Retailer Bundling in a Distribution Channel," Journal of Retailing, Elsevier, vol. 91(1), pages 50-67.
    6. John Aloysius & Cary Deck & Amy Farmer, 2013. "Sequential Pricing of Multiple Products: Leveraging Revealed Preferences of Retail Customers Online and with Auto-ID Technologies," Information Systems Research, INFORMS, vol. 24(2), pages 372-393, June.
    7. Cem Ozturk, O. & Karabatı, Selçuk, 2017. "A decision support framework for evaluating revenue performance in sequential purchase contexts," European Journal of Operational Research, Elsevier, vol. 263(3), pages 922-934.
    8. Verwer, S. & Zhang, Y., 2011. "Revenue Prediction in Budget-constrained Sequential Auctions with Complementarities," ERIM Report Series Research in Management ERS-2011-020-LIS, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    9. Vithala R. Rao & Gary J. Russell & Hemant Bhargava & Alan Cooke & Tim Derdenger & Hwang Kim & Nanda Kumar & Irwin Levin & Yu Ma & Nitin Mehta & John Pracejus & R. Venkatesh, 2018. "Emerging Trends in Product Bundling: Investigating Consumer Choice and Firm Behavior," Customer Needs and Solutions, Springer;Institute for Sustainable Innovation and Growth (iSIG), vol. 5(1), pages 107-120, March.
    10. Nobuyuki Hanaki & Takashi Hayashi & Michele Lombardi & Kazuhito Ogawa, 2021. "Partial equilibrium mechanism and inter-sectoral coordination: an experiment," ISER Discussion Paper 1138, Institute of Social and Economic Research, Osaka University.
    11. Steven M. Shugan & Jihwan Moon & JQiaoni Shi & Nanda S. Kumar, 2017. "Product Line Bundling: Why Airlines Bundle High-End While Hotels Bundle Low-End," Marketing Science, INFORMS, vol. 36(1), pages 124-139, January.
    12. Kittsteiner, Thomas & Ott, Marion & Steinberg, Richard, 2021. "Competing Combinatorial Auctions," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics.

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