Bundling Strategies When Products Are Vertically Differentiated and Capacities Are Limited
We consider a seller who owns two capacity-constrained resources and markets two products (components) corresponding to these resources as well as a bundle comprising the two components. In an environment where all customers agree that one of the two components is of higher quality than the other and that the bundle is of the highest quality, we derive the seller's optimal bundling strategy. We demonstrate that the optimal solution depends on the absolute and relative availabilities of the two resources as well as upon the extent of subadditivity of the quality of the products. The possible strategies that can arise as equilibrium behavior include a pure components strategy, a partial- or full-spectrum mixed bundling strategy, and a pure bundling strategy, where the latter strategy is optimal when capacities are unconstrained. These conclusions are contrary to findings in the prior literature on bundling that demonstrated the unambiguous dominance of the full-spectrum mixed bundling strategy. Thus, our work expands the frontier of bundling to an environment with vertically differentiated components and limited resources. We also explore how the bundling strategies change as we introduce an element of horizontal differentiation wherein different types of customers value the available components differently.
Volume (Year): 56 (2010)
Issue (Month): 12 (December)
|Contact details of provider:|| Postal: |
Web page: http://www.informs.org/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:56:y:2010:i:12:p:2207-2223. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.