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Nearly Optimal Pricing for Multiproduct Firms


  • Chenghuan Sean Chu
  • Phillip Leslie
  • Alan Sorensen


In principle, a multiproduct firm can set separate prices for all possible bundled combinations of its products (i.e., "mixed bundling"). However, this is impractical for firms with more than a few products, because the number of prices increases exponentially with the number of products. In this study we show that simple pricing strategies are often nearly optimal -- i.e., with surprisingly few prices a firm can obtain 99% of the profit that would be earned by mixed bundling. Specifically, we show that bundle-size pricing -- setting prices that depend only on the size of bundle purchased -- tends to be more profitable than offering the individual products priced separately, and tends to closely approximate the profits from mixed bundling. These findings are based on an array of numerical experiments covering a broad range of demand and cost scenarios, as well as an empirical analysis of the pricing problem for an 8-product firm (a theater company).

Suggested Citation

  • Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2008. "Nearly Optimal Pricing for Multiproduct Firms," NBER Working Papers 13916, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13916
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    References listed on IDEAS

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    Cited by:

    1. Katherine Ho & Justin Ho & Julie Holland Mortimer, 2012. "The Use of Full-Line Forcing Contracts in the Video Rental Industry," American Economic Review, American Economic Association, vol. 102(2), pages 686-719, April.
    2. Shi, Guanming & Chavas, Jean-Paul & Stiegert, Kyle, 2008. "An Analysis of Bundle Pricing: The Case of the Corn Seed Market," Staff Paper Series 529, University of Wisconsin, Agricultural and Applied Economics.
    3. Suen, Richard M.H., 2013. "Research Policy and U.S. Economic Growth," MPRA Paper 49103, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L0 - Industrial Organization - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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