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The Strategic Effect of Bundling: A New Perspective

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  • Andrea Mantovani

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Abstract

This paper investigates the strategic effect of the bundling strategy that is adopted by a multi-product firm that produces two complementary goods and faces one single-product rival in each market. I consider both the Cournot and Bertrand cases. When firms compete in quantities, bundling is completely ineffective. Under price competition, selling as a package is profitable when market competition is particularly tough. In such circumstances, the multi-product firm resorts to bundling to dampen the negative impact of low brand differentiation and/or scarce product complementarity. However, overall prices increase as a result of bundling, and not only consumer surplus, but also total social welfare, shrink. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Andrea Mantovani, 2013. "The Strategic Effect of Bundling: A New Perspective," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 42(1), pages 25-43, February.
  • Handle: RePEc:kap:revind:v:42:y:2013:i:1:p:25-43
    DOI: 10.1007/s11151-012-9361-9
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    File URL: http://hdl.handle.net/10.1007/s11151-012-9361-9
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    References listed on IDEAS

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    Cited by:

    1. Andrea Mantovani & Jan Vandekerckhove, 2016. "The Strategic Interplay Between Bundling and Merging in Complementary Markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 37(1), pages 19-36, January.
    2. Carroll, Kathryn A. & Samek, Anya Savikhin & Zepeda, Lydia, 2016. "Product Bundling as a Behavioral Nudge: Investigating Consumer Fruit and Vegetable Selection using Dual-Self Theory," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 236130, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Bundling; Strategic effect; Cournot and Bertrand competition;

    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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