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Competitive Mixed Bundling and Consumer Surplus

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  • John Thanassoulis

Abstract

Mixed bundling in imperfectly competitive industries causes some prices to rise and others to fall. This paper studies under what conditions mixed bundling works for or against the consumer interest. We find that if buyers incur firm specific costs or have shop specific tastes then competitive mixed bundling lowers consumer surplus overall and raises profits - the same is true of competitive volume discounts. Competition without these discounts causes all prices to be kept low as larger customers are targeted; with discounts the prices for heavy users drop, but more is extracted from small users. The consumer surplus result is reversed if the differentiation between components as opposed to firms is key.

Suggested Citation

  • John Thanassoulis, 2006. "Competitive Mixed Bundling and Consumer Surplus," Economics Series Working Papers 263, University of Oxford, Department of Economics.
  • Handle: RePEc:oxf:wpaper:263
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    File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper263.pdf
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    References listed on IDEAS

    as
    1. Choi, Jay Pil & Stefanadis, Christodoulos, 2001. "Tying, Investment, and the Dynamic Leverage Theory," RAND Journal of Economics, The RAND Corporation, pages 52-71.
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    4. Joshua S. Gans & Stephen P. King, 2006. "PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 54(1), pages 43-62, March.
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    7. Thisse, Jacques-Francois & Vives, Xavier, 1988. "On the Strategic Choice of Spatial Price Policy," American Economic Review, American Economic Association, pages 122-137.
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    10. Stole, Lars A., 2007. "Price Discrimination and Competition," Handbook of Industrial Organization, Elsevier.
    11. Mark Armstrong, 2005. "Recent Developments in the Economics of Price Discrimination," Industrial Organization 0511004, EconWPA.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Bundling; Loyalty Rebates; Volume Discounts; Competitive Price Discrimination;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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