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Bundling, à la carte pricing and vertical bargaining in a two-sided model

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  • Chen, Minghua
  • Rennhoff, Adam D.
  • Serfes, Konstantinos

Abstract

We develop a two-sided market model with an upstream–downstream structure. More specifically, the platform consists of two rival upstream firms and a downstream monopolist. Each upstream firm negotiates the input price (license fee) with the downstream monopolist and also chooses the amount of advertising that is embedded in the good it sells to the downstream monopolist. The downstream monopolist can offer the two goods either on an à la carte basis or as a bundle. We use this model to understand the incentives to bundle and the welfare properties of bundling in a two-sided market framework. We also contribute to the ongoing debate on à la carte pricing in the TV industry, where the two upstream firms can be viewed as two rival TV networks and the downstream monopolist as a cable operator. We show that an à la carte regulation will raise consumer surplus and downstream profit, while it will decrease the profits of the upstream TV networks.

Suggested Citation

  • Chen, Minghua & Rennhoff, Adam D. & Serfes, Konstantinos, 2016. "Bundling, à la carte pricing and vertical bargaining in a two-sided model," Information Economics and Policy, Elsevier, vol. 35(C), pages 30-44.
    • Handle: RePEc:eee:iepoli:v:35:y:2016:i:c:p:30-44
    DOI: 10.1016/j.infoecopol.2016.03.001
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    Cited by:

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    2. Tseng, Kuo-Feng, 2019. "The Digital Cable TV Pricing Mechanism and the Consumer Preferences: the Survey in Taiwan," 30th European Regional ITS Conference, Helsinki 2019 205219, International Telecommunications Society (ITS).
    3. 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.
    4. Lin, Xiaogang & Zhou, Yong-Wu & Xie, Wei & Zhong, Yuanguang & Cao, Bin, 2020. "Pricing and Product-bundling Strategies for E-commerce Platforms with Competition," European Journal of Operational Research, Elsevier, vol. 283(3), pages 1026-1039.
    5. Wu, Xiangxiang & Zha, Yong & Ling, Liuyi & Yu, Yugang, 2022. "Competing OEMs’ responses to a developer's services installation and strategic update of platform quality," European Journal of Operational Research, Elsevier, vol. 297(2), pages 545-559.

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    More about this item

    Keywords

    Bundling; Two-sided market; Vertical relations; À la carte regulation;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media

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