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Profitability of Product Bundling

  • Yongmin Chen

    ()

    (Colorado University - Department of Economics)

  • Michael Riordan

    ()

    (Columbia University - Department of Economics)

Using copulas to model the stochastic dependence of values, this paper establishes new general conditions on the profitability of product bundling. A multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two products are negatively dependent, independent, or have limited positive dependence. With more than two goods, the same conditions are sufficient for an optimal monopoly selling scheme to include a bundle of at least two products. The profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single-product rival.

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File URL: http://www.econ.columbia.edu/RePEc/pdf/DP1011-02.pdf
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Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1011-02.

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Date of creation: 2011
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Handle: RePEc:clu:wpaper:1011-02
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