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The strategic effect of bundling: a new perspective

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  • A. Mantovani

Abstract

This paper investigates the strategic effect of bundling when a multi-product firm producing two complements faces competition in both markets. I consider a demand structure where both Cournot and Bertrand competition can be evaluated. Bundling is completely ineffective when firms compete in quantities. On the contrary, under Bertrand competition, selling the two goods in a package is profitable when the goods produced by the rivals are perceived as close substitutes to those produced by the multi-product firm. Bundling drives prices up, and not only consumer surplus, but also social welfare shrinks, thus calling for the intervention of the antitrust agency.

Suggested Citation

  • A. Mantovani, 2010. "The strategic effect of bundling: a new perspective," Working Papers 705, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:705
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    Cited by:

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    2. 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.
    3. 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, Boston, Massachusetts 236130, Agricultural and Applied Economics Association.
    4. Joachim Heinzel, 2019. "Bundling in a Distribution Channel with Retail Competition," Working Papers CIE 120, Paderborn University, CIE Center for International Economics.
    5. Alex Lord & Philip O’Brien, 2017. "What price planning? Reimagining planning as “market maker”," Planning Theory & Practice, Taylor & Francis Journals, vol. 18(2), pages 217-232, April.
    6. Gregor Langus & Vilen Lipatov & Jorge Padilla, 2019. "Non-horizontal mergers with investments into compatibility," CESifo Working Paper Series 7617, CESifo.
    7. Reeti Agarwal, 2018. "Indian Customers’ Attitude Towards Bundling: A Basis for Classification and Targeting," Global Business Review, International Management Institute, vol. 19(2), pages 510-531, April.
    8. 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.

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    More about this item

    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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