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Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products

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  • R. Venkatesh

    (University of Pittsburgh)

  • Wagner Kamakura

    (Duke University)

Abstract

We develop an analytical model of contingent valuations and address two questions of import to a monopolist: (i) should a given pair of complements or substitutes be sold separately (pure components), together (pure bundling), or both (mixed bundling), and at what prices? (ii) How do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products? We find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal. Complements and substitutes should typically be priced higher than independently valued products.

Suggested Citation

  • R. Venkatesh & Wagner Kamakura, 2003. "Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products," The Journal of Business, University of Chicago Press, vol. 76(2), pages 211-232, April.
  • Handle: RePEc:ucp:jnlbus:v:76:y:2003:i:2:p:211-232
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