Evaluating the Profitability of Product Bundling in the Context of Negotiations

Esther Gal-Or ()

Journal of Business, 2004, vol. 77, issue 4, pages 639-674

Abstract: I develop a model to evaluate the profitability of product bundling in the context of negotiations between a monopolist and intermediaries that sell its products to consumers. I investigate whether the monopolist finds it feasible and advantageous to utilize product bundling to block negotiations between the intermediaries and a rival firm, which competes against the monopolist in a complementary market. My model demonstrates that bundling can be affected by intermediate bargaining power. Specifically, while the example I consider supports the profitability of product bundling when the monopolist sells its product directly to consumers, the existence of negotiations with intermediaries may reverse this result.

Date: 2004

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