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The Impact of Product Differentiation on Retail Bundling in a Vertical Market

Author

Listed:
  • Angelika Endres-Fröhlich

    (Paderborn University)

  • Burkhard Hehenkamp

    (Paderborn University)

  • Joachim Heinzel

    (Paderborn University)

Abstract

We study the effects of product differentiation on the bundling incentives of a two-product retailer. Two monopolistic manufacturers each produce a differentiated good. One sells it to both retailers, while the other only supplies a single retailer. Retailers compete in prices. Retail bundling is profitable when the goods are close substitutes. Only then is competition so intense that the retailer uses bundling to relax competition both within and across product markets, despite an aggravation of the double marginalization problem. Our asymmetric market structure arises endogenously for the case of close substitutes. In this case, bundling reduces social welfare.

Suggested Citation

  • Angelika Endres-Fröhlich & Burkhard Hehenkamp & Joachim Heinzel, 2022. "The Impact of Product Differentiation on Retail Bundling in a Vertical Market," Working Papers Dissertations 91, Paderborn University, Faculty of Business Administration and Economics.
    • Handle: RePEc:pdn:dispap:91
    as

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    File URL: http://groups.uni-paderborn.de/wp-wiwi/RePEc/pdf/dispap/DP91.pdf
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    References listed on IDEAS

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    Cited by:

    1. Angelika Endres-Fröhlich, 2022. "The Impact of Product Differentiation on the Channel Structure in a Manufacturer-Driven Supply Chain," Working Papers Dissertations 92, Paderborn University, Faculty of Business Administration and Economics.

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    More about this item

    Keywords

    retail bundling; upstream market power; double marginalization; product differentiation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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