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Bundled Sales as Self-Selection Devise

Author

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  • Wallner, Klaus

    (SITE - Stockholm Institute of Transition Economics and East European Economies)

Abstract

This paper develops an adverse selection model of mixed bundling. By packaging its product with a competitively produced good unrelated in demand, a monopolist can induce self-selection of different types of consumers into buyers of the bundle and of the separate components. Private and social optimality conditions of bundling are derived. The effect on prices and welfare depends on the demand elasticities for the bundled and unbundled good. By overcoming information asymmetries, bundling may raise welfare if it leads to a sufficiently strong expansion of the market. It is possible that prices to all buyers rise; in this case welfare definitely falls if the bundle is introduced.

Suggested Citation

  • Wallner, Klaus, 1998. "Bundled Sales as Self-Selection Devise," SSE/EFI Working Paper Series in Economics and Finance 253, Stockholm School of Economics.
    • Handle: RePEc:hhs:hastef:0253
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    Cited by:

    1. Philip J. Cook & James A. Leitzel, 2002. "“Smart” Guns: A Technological Fix For Regulating The Secondary Market," Contemporary Economic Policy, Western Economic Association International, vol. 20(1), pages 38-49, January.

    More about this item

    Keywords

    Commodity bundling; price discrimination.;

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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