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Optimal bundle pricing under correlated valuations

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  • Chen, Bo
  • Ni, Debing

Abstract

We study optimal pricing issues for a monopolist selling two indivisible goods to a continuum of consumers with correlated private valuations over the goods, where the (positive or negative) correlation is modeled using copulas in the Fréchet family. We derive explicit optimal pricing schemes and comparative statics results for various environments in our setting. The optimal pricing schemes can take several forms, including pure bundling, partial mixed bundling, and mixed bundling, depending jointly on the degrees of asymmetry and correlation of the consumers’ valuations. The explicit optimal pricing schemes also enable us to investigate whether and how the monopolist’s profit can be further improved via random assignments.

Suggested Citation

  • Chen, Bo & Ni, Debing, 2017. "Optimal bundle pricing under correlated valuations," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 248-281.
    • Handle: RePEc:eee:indorg:v:52:y:2017:i:c:p:248-281
    DOI: 10.1016/j.ijindorg.2017.02.002
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    3. Shepard, Jun U. & Pratson, Lincoln F., 2020. "Hybrid input-output analysis of embodied energy security," Applied Energy, Elsevier, vol. 279(C).

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    More about this item

    Keywords

    Bundling; Correlated valuations; Monopoly pricing; Price discrimination; Random mechanism;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies

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