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Option Package Bundling

  • Takanori Adachi

    (School of Economics Nagoya University)

  • Takeshi Ebina

    (School of Management Tokyo University of Science)

  • Makoto Hanazono

    (School of Economics Nagoya University)

This paper analyzes the optimality of package bundling by focusing on the ?main and accessory?relationship between two goods. In particular, we consider option package bundling in which an optional good is valuable only if it is consumed together with a certain (nonoptional) base good. We develop a model of option package bundling for a monopolist in which buyers?valuations are independently and uniformly distributed. We also allow inter-relationship between valuations by assuming that the reservation value of the bundle can be greater or less than the sum of the innate value of both goods. Our analysis observes that mixed bundling, in which the base good is sold with or without the optional good, yields a higher pro?t than pure bundling if and only if the range of the optional good valuation exceeds a threshold value. We then conduct a welfare analysis of the bundling choice. The result is surprising: pure bundling is always desirable from the social welfare viewpoint when a monopolist chooses mixed bundling.

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File URL: http://www.kier.kyoto-u.ac.jp/DP/DP785.pdf
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Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 785.

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Date of creation: Oct 2011
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Handle: RePEc:kyo:wpaper:785
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  1. John Thanassoulis, 2006. "Competitive Mixed Bundling and Consumer Surplus," Economics Series Working Papers 263, University of Oxford, Department of Economics.
  2. Crawford, Gregory S & Yurukoglu, Ali, 2011. "The Welfare Effects of Bundling in Multichannel Television Markets," CEPR Discussion Papers 8370, C.E.P.R. Discussion Papers.
  3. Hanming Fang & Peter Norman, 2003. "To Bundle or Not to Bundle," Cowles Foundation Discussion Papers 1440, Cowles Foundation for Research in Economics, Yale University.
  4. Yannis Bakos & Erik Brynjolfsson, 1997. "Bundling Information Goods: Pricing, Profits and Efficiency," Working Paper Series 199, MIT Center for Coordination Science.
  5. Armstrong, M., 1996. "Price discrimination by a many-product firm," Discussion Paper Series In Economics And Econometrics 9628, Economics Division, School of Social Sciences, University of Southampton.
  6. Doh-Shin Jeon & Domenico Menicucci, 2012. "Bundling and Competition for Slots," American Economic Review, American Economic Association, vol. 102(5), pages 1957-85, August.
  7. repec:cup:cbooks:9780521816632 is not listed on IDEAS
  8. McAfee, R Preston & McMillan, John & Whinston, Michael D, 1989. "Multiproduct Monopoly, Commodity Bundling, and Correlation of Values," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 371-83, May.
  9. repec:rje:randje:v:37:y:2006:i:4:p:946-963 is not listed on IDEAS
  10. John C. Eckalbar, 2010. "Closed-Form Solutions to Bundling Problems," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 513-544, 06.
  11. Adams, William James & Yellen, Janet L, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, MIT Press, vol. 90(3), pages 475-98, August.
  12. Gregory Crawford, 2008. "The discriminatory incentives to bundle in the cable television industry," Quantitative Marketing and Economics, Springer, vol. 6(1), pages 41-78, March.
  13. David S. Evans & Albert L. Nichols & Richard Schmalensee, 2005. "U.S. v. Microsoft: Did Consumers Win?," NBER Working Papers 11727, National Bureau of Economic Research, Inc.
  14. Salinger, Michael A, 1995. "A Graphical Analysis of Bundling," The Journal of Business, University of Chicago Press, vol. 68(1), pages 85-98, January.
  15. repec:cup:cbooks:9780521016919 is not listed on IDEAS
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