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Output Commitment through Product Bundling: Experimental Evidence

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Abstract

We analyze the impact of product bundling in experimental markets. A firm has monopoly power in one market but faces competition by a second firm in another market. We compare treatments where the monopolist can bundle its two products to treatments where it cannot, and we contrast simultaneous and sequential order of moves. Our data indicate support for the theory of product bundling, even though substantial payoff differences between players exist. With bundling and simultaneous moves, the monopolist offers the predicted number of units. When the monopolist is the Stackelberg leader, the predicted equilibrium is better attained with bundling although in theory bundling should not make a difference here. In sum: bundling works as a commitment device that enables the transfer of market power from one market to another.

Suggested Citation

  • Jeroen Hinloopen & Wieland Müller & Hans-Theo Normann, 2011. "Output Commitment through Product Bundling: Experimental Evidence," Vienna Economics Papers vie1112, University of Vienna, Department of Economics.
    • Handle: RePEc:vie:viennp:vie1112
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    Cited by:

    1. Qing Hu & Tomomichi Mizuno, 2021. "Positive Effects of Bundling on Rival's Profit and Social Welfare in a Vertical Relationship," Economics Bulletin, AccessEcon, vol. 41(1), pages 85-92.
    2. William Comanor & H. Frech, 2015. "Economic Rationality and the Areeda–Turner Rule," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(3), pages 253-268, May.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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