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Bundling and joint marketing by rival firms

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  • Jeitschko, Thomas D.
  • Jung, Yeonjei
  • Kim, Jaesoo

Abstract

We study joint marketing arrangements by competing firms who engage in price discrimination between consumers who patronize only one firm (single purchasing) and those who purchase from both competitors (bundle purchasers). Two types of joint marketing are considered. Firms either commit to a component-price that applies to bundle-purchasers and then firms set stand-alone prices for single purchasers; or firms commit to a rebate off their stand alone price that will be applied to bundle-purchasers, and then firms set their stand alone prices. Both methods allow firms to raise prices and earn higher profits. However, the effect of price discrimination on social welfare depends on how prices are chosen. The rebate joint marketing scheme increases joint purchasing, whereas bundle pricing diminishes bundle purchases. If the marginal social value of a bundle over a single purchase is large, the former increases total welfare. However, welfare can also increase with bundle pricing compared to non-discriminatory pricing.

Suggested Citation

  • Jeitschko, Thomas D. & Jung, Yeonjei & Kim, Jaesoo, 2014. "Bundling and joint marketing by rival firms," DICE Discussion Papers 144, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    • Handle: RePEc:zbw:dicedp:144
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    6. Sarat Kumar Jena & Abhijeet Ghadge, 2022. "Product bundling and advertising strategy for a duopoly supply chain: a power-balance perspective," Annals of Operations Research, Springer, vol. 315(2), pages 1729-1753, August.
    7. Zhou, Jidong, 2021. "Mixed bundling in oligopoly markets," Journal of Economic Theory, Elsevier, vol. 194(C).
    8. Ishihara, Akifumi & Yanagawa, Noriyuki, 2018. "Dark sides of patent pools with independent licensing," International Journal of Industrial Organization, Elsevier, vol. 57(C), pages 1-34.
    9. Thomas D. Jeitschko & Yeonjei Jung & Jaesoo Kim, 2017. "Bundling and joint marketing by rival firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 26(3), pages 571-589, September.
    10. Xiaokuai Shao, 2020. "Diversity and Quantity Choice in a Horizontally Differentiated Duopoly," Journal of Industry, Competition and Trade, Springer, vol. 20(4), pages 689-708, December.
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    More about this item

    Keywords

    Bundling; Joint Marketing; Price Discrimination;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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