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Bundled procurement

Author

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  • Chen, Yongmin
  • Li, Jianpei

Abstract

When procuring multiple products from competing firms, a buyer may choose separate purchase, pure bundling, or mixed bundling. We show that pure bundling will generate higher buyer surplus than both separate purchase and mixed bundling, provided that trade for each good is likely to be efficient. Pure bundling is superior because it intensifies the competition between firms by reducing their cost asymmetry. Mixed bundling is inferior because it allows firms to coordinate to the high prices associated with separate purchase. (Pure) bundling is more likely to be selected as a procurement strategy when: (i) the products' values are higher relative to their possible costs, (ii) costs for different goods are more negatively or less positively dependent, or (iii) the cost distribution of each product is more dispersed.

Suggested Citation

  • Chen, Yongmin & Li, Jianpei, 2015. "Bundled procurement," MPRA Paper 63423, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:63423
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    References listed on IDEAS

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    More about this item

    Keywords

    procurement; bundled procurement; separate purchase; bundling; mixed bundling;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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