IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Effects of Product Bundling in Duopoly

  • Reisinger, Markus
Registered author(s):

    This paper studies the incentives for multiproduct duopolists to sell their products as a bundle. It is shown that contrary to the monopoly case bundling may reduce profits and increase consumer rent. This is the case if consumers' reservation values are negatively correlated. The reason is that bundling reduces consumer heterogeneity and makes price competition more aggressive. This effect can dominate the sorting effect that is well known for the monopoly case. Firms are in a prisoner's dilemma situation because they would be better off without bundling. Despite the lower prices a welfare loss occurs because some consumers do not buy their prefered product which results in distributive inefficiency. If firms can influence the correlation by choosing their location in the product range they try to avoid negative correlation and choose minimal differentiation in one good.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://epub.ub.uni-muenchen.de/477/1/munichbundle.pdf
    Download Restriction: no

    Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number 477.

    as
    in new window

    Length:
    Date of creation: Dec 2004
    Date of revision:
    Handle: RePEc:lmu:muenec:477
    Contact details of provider: Postal: Ludwigstr. 28, 80539 Munich, Germany
    Phone: +49-(0)89-2180-3405
    Fax: +49-(0)89-2180-3510
    Web page: http://www.vwl.uni-muenchen.de

    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Tabuchi, T. & Thisse, J.-F., . "Asymetric equilibria in spatial competition," CORE Discussion Papers RP -1151, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    2. Schmalensee, Richard, 1984. "Gaussian Demand and Commodity Bundling," The Journal of Business, University of Chicago Press, vol. 57(1), pages S211-30, January.
    3. Neven, D., 1985. "On hotelling’s competition with non uniform customer distributions," CORE Discussion Papers 1985044, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Andreas IRMEN & Jean-François THISSE, 1996. "Competition in Multi-Characteristics Spaces: Hotelling Was Almost Right," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9613, Université de Lausanne, Faculté des HEC, DEEP.
    5. Chen, Yongmin, 1997. "Equilibrium Product Bundling," The Journal of Business, University of Chicago Press, vol. 70(1), pages 85-103, January.
    6. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    7. Whinston, Michael D, 1990. "Tying, Foreclosure, and Exclusion," American Economic Review, American Economic Association, vol. 80(4), pages 837-59, September.
    8. Matutes, Carmen & Regibeau, Pierre, 1992. "Compatibility and Bundling of Complementary Goods in a Duopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 40(1), pages 37-54, March.
    9. Carbajo, Jose & de Meza, David & Seidmann, Daniel J, 1990. "A Strategic Motivation for Commodity Bundling," Journal of Industrial Economics, Wiley Blackwell, vol. 38(3), pages 283-98, March.
    10. Varian, Hal R., 1989. "Price discrimination," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 10, pages 597-654 Elsevier.
    11. Denicolo, Vincenzo, 2000. "Compatibility and Bundling with Generalist and Specialist Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 48(2), pages 177-88, June.
    12. Anderson, Simon P. & Goeree, Jacob K. & Ramer, Roald, 1997. "Location, Location, Location," Journal of Economic Theory, Elsevier, vol. 77(1), pages 102-127, November.
    13. d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "On Hotelling's "Stability in competition"," CORE Discussion Papers RP -385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    14. 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.
    15. Jeremy I. Bulow & John Geanakoplos & Paul D. Klemperer, 1983. "Multimarket Oligopoly," Cowles Foundation Discussion Papers 674, Cowles Foundation for Research in Economics, Yale University.
    16. 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.
    17. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
    18. Seidmann, Daniel J, 1991. "Bundling as a Facilitating Device: A Reinterpretation of Leverage Theory," Economica, London School of Economics and Political Science, vol. 58(232), pages 491-99, November.
    19. Choi, Jay Pil, 1996. "Preemptive R&D, Rent Dissipation, and the "Leverage Theory."," The Quarterly Journal of Economics, MIT Press, vol. 111(4), pages 1153-81, November.
    20. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 159-187, February.
    21. Anderson, Simon P. & Leruth, Luc, 1993. "Why firms may prefer not to price discriminate via mixed bundling," International Journal of Industrial Organization, Elsevier, vol. 11(1), pages 49-61, March.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:lmu:muenec:477. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alexandra Frank)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.