Munich Personal RePEc Archive

A more general theory of commodity bundling

Armstrong, Mark (2012): A more general theory of commodity bundling.

[img]
Preview
PDF
MPRA_paper_37375.pdf

Download (251Kb) | Preview

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.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.