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A more general theory of commodity bundling

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  • Armstrong, Mark

Abstract

This paper extends the standard model of bundling as a price discrimination device to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. Product substitutability typically gives an integrated firm a greater incentive to offer a bundle discount (relative to the model with additive preferences), while substitutability is often the sole reason why separate sellers wish to offer inter-firm discounts. When separate sellers coordinate on an inter-firm discount, they can use the discount to overturn product substitutability and relax competition.

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  • Armstrong, Mark, 2012. "A more general theory of commodity bundling," MPRA Paper 37375, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:37375
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Price discrimination; bundling; oligopoly;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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