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Bundling Information Goods of Decreasing Value

Author

Listed:
  • Xianjun Geng

    () (Department of Management Science, University of Washington Business School, Seattle, Washington 98195)

  • Maxwell B. Stinchcombe

    () (Department of Economics, The University of Texas at Austin, Austin, Texas 78712)

  • Andrew B. Whinston

    () (Department of Management Science and Information Systems, The University of Texas at Austin, Austin, Texas 78712)

Abstract

Consumers' average value for information goods, websites, weather forecasts, music, and news declines with the number consumed. This paper provides simple guidelines to optimal bundling marketing strategies in this case. If consumers' values do not decrease too quickly, we show that bundling is approximately optimal. If consumers' values to subsequent goods decrease quickly, we show by example that one should expect bundling to be suboptimal.

Suggested Citation

  • Xianjun Geng & Maxwell B. Stinchcombe & Andrew B. Whinston, 2005. "Bundling Information Goods of Decreasing Value," Management Science, INFORMS, vol. 51(4), pages 662-667, April.
  • Handle: RePEc:inm:ormnsc:v:51:y:2005:i:4:p:662-667
    as

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    File URL: http://dx.doi.org/10.1287/mnsc.1040.0344
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    References listed on IDEAS

    as
    1. Hanming Fang & Peter Norman, 2006. "To bundle or not to bundle," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 946-963, December.
    2. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages 211-230, January.
    3. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
    4. Mark Armstrong, 1999. "Price Discrimination by a Many-Product Firm," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 151-168.
    5. 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.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Yuanchun Jiang & Jennifer Shang & Chris F. Kemerer & Yezheng Liu, 2011. "Optimizing E-tailer Profits and Customer Savings: Pricing Multistage Customized Online Bundles," Marketing Science, INFORMS, vol. 30(4), pages 737-752, July.
    2. Stefano Galavotti, 2014. "Reducing Inefficiency in Public Good Provision Through Linking," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(3), pages 427-466, June.
    3. repec:wsi:apjorx:v:34:y:2017:i:02:n:s0217595917500075 is not listed on IDEAS
    4. Amiya Basu & Padmal Vitharana, 2009. "—Impact of Customer Knowledge Heterogeneity on Bundling Strategy," Marketing Science, INFORMS, vol. 28(4), pages 792-801, 07-08.
    5. Chhabra, Meenal & Das, Sanmay & Sarne, David, 2014. "Expert-mediated sequential search," European Journal of Operational Research, Elsevier, vol. 234(3), pages 861-873.
    6. Rustam Ibragimov & Johan Walden, 2010. "Optimal Bundling Strategies Under Heavy-Tailed Valuations," Management Science, INFORMS, vol. 56(11), pages 1963-1976, November.
    7. Mark Armstrong, 2016. "Nonlinear Pricing," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 583-614, October.
    8. Hal R. Varian, 2005. "Copying and Copyright," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 121-138, Spring.
    9. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2006. "Nearly Optimal Pricing for Multiproduct Firms," 2006 Meeting Papers 830, Society for Economic Dynamics.
    10. Li, Minqiang & Feng, Haiyang & Chen, Fuzan & Kou, Jisong, 2013. "Numerical investigation on mixed bundling and pricing of information products," International Journal of Production Economics, Elsevier, vol. 144(2), pages 560-571.
    11. Gayer, Amit & Shy, Oz, 2016. "A welfare evaluation of tying strategies," Research in Economics, Elsevier, vol. 70(4), pages 623-637.
    12. Ramnath K. Chellappa & Shivendu Shivendu, 2010. "Mechanism Design for "Free" but "No Free Disposal" Services: The Economics of Personalization Under Privacy Concerns," Management Science, INFORMS, vol. 56(10), pages 1766-1780, October.
    13. Sheikhzadeh, Mehdi & Elahi, Ehsan, 2013. "Product bundling: Impacts of product heterogeneity and risk considerations," International Journal of Production Economics, Elsevier, vol. 144(1), pages 209-222.
    14. repec:spr:infosf:v:14:y:2012:i:3:d:10.1007_s10796-010-9290-9 is not listed on IDEAS
    15. Ke-Wei Huang & Arun Sundararajan, 2006. "Pricing Digital Goods: Discontinuous Costs and Shared Infrastructure," Working Papers 06-11, NET Institute, revised Sep 2006.

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