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Dominance and Competitive Bundling

Listed author(s):
  • Hurkens, Sjaak
  • Jeon, Doh-Shin
  • Menicucci, Domenico

We study bundling by a dominant multi-product firm facing competition from a rival multi-product firm. Compared to competition under independent pricing, competition under pure bundling reduces (increases) each firm's profit for low (high) levels of dominance, while for intermediate levels of dominance, it increases the dominant firm's profit but reduces the rival's profit. The latter result provides a justification for the use of contractual bundling to build entry barrier. When we allow for mixed bundling, we find a threshold level of dominance above which the unique outcome is the one under pure bundling.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 13-423.

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Date of creation: 13 Aug 2013
Handle: RePEc:tse:wpaper:27441
Contact details of provider: Phone: (+33) 5 61 12 86 23
Web page: http://www.tse-fr.eu/

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  1. Pavlov Gregory, 2011. "Optimal Mechanism for Selling Two Goods," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-35, February.
  2. Kai Uwe Kühn & John Van Reenen, 2008. "Interoperability and Market Foreclosure In the European Microsoft Case," CEP Special Papers 20, Centre for Economic Performance, LSE.
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  8. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599, November.
  9. Doh-Shin Jeon & Domenico Menicucci, 2012. "Bundling and Competition for Slots," American Economic Review, American Economic Association, vol. 102(5), pages 1957-1985, August.
  10. Armstrong, Mark, 2006. "Price discrimination," MPRA Paper 4693, University Library of Munich, Germany.
  11. Mark Armstrong & John Vickers, 2010. "Competitive Non-linear Pricing and Bundling," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 30-60.
  12. 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 283-298, March.
  13. Dennis W. Carlton & Joshua S. Gans & Michael Waldman, 2010. "Why Tie a Product Consumers Do Not Use?," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 85-105, August.
  14. Mark Armstrong, 2016. "Nonlinear Pricing," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 583-614, October.
  15. Yannis Bakos & Erik Brynjolfsson, 1999. "Bundling Information Goods: Pricing, Profits, and Efficiency," Management Science, INFORMS, vol. 45(12), pages 1613-1630, December.
  16. Dennis W. Carlton & Michael Waldman, 2002. "The Strategic Use of Tying to Preserve and Create Market Power in Evolving Industries," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 194-220, Summer.
  17. Roger B. Myerson, 1981. "Optimal Auction Design," Mathematics of Operations Research, INFORMS, vol. 6(1), pages 58-73, February.
  18. Barry Nalebuff, 2004. "Bundling as an Entry Barrier," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 159-187.
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