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Bundling can signal high quality

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  • Dana, James D.

Abstract

When consumers have noisy information, bundling experience goods can signal high quality in a simple static model. When consumers are partially informed, bundling has a bigger negative impact on the sales of a low-quality firm than on the sales of a firm with two high-quality products. Bundling can also signal high quality by restricting total sales even when consumers are uninformed. However, I argue this is not a likely explanation for bundling because raising prices is always a more profitable way to restrict total sales than bundling.

Suggested Citation

  • Dana, James D., 2020. "Bundling can signal high quality," International Journal of Industrial Organization, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:indorg:v:69:y:2020:i:c:s0167718720300011
    DOI: 10.1016/j.ijindorg.2020.102579
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    References listed on IDEAS

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    1. Linnemer, Laurent, 2002. "Price and advertising as signals of quality when some consumers are informed," International Journal of Industrial Organization, Elsevier, vol. 20(7), pages 931-947, September.
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    Cited by:

    1. Li, Jianpei & Zhang, Wanzhu, 2022. "Behavior-based pricing and signaling of product quality," MPRA Paper 120263, University Library of Munich, Germany, revised 03 Jan 2023.

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