Bundling and Competition for Slots

Doh-Shin Jeon () and Domenico Menicucci ()
Additional contact information
Doh-Shin Jeon: Department of Economics and Business, Universitat Pompeu Fabra, http://www.econ.upf.edu/en/people/onefaculty.php?id=p2071
Domenico Menicucci: Dipartimento di Matematica per le Decisioni, Universita' degli Studi di Firenze, http://www.dmd.unifi.it/index.php?loc=personal&id=d.menicucci

No 07-15, Working Papers from NET Institute

Abstract: We study competition among upstream firms when each of them sells a portfolio of distinct products and the downstream has a limited number of slots (or shelf space). In this situation, we study how bundling affects competition for slots. When the downstream has k number of slots, social efficiency requires that it purchases the best k products among all upstream firms' products. We find that under bundling, the outcome is always socially efficient but under individual sale, the outcome is not necessarily efficient. Under individual sale, each upstream firm faces a trade-off between quantity and rent extraction due to the coexistence of the internal competition (i.e. competition among its own products) and the external competition (i.e. competition from other firms' products), which can create inefficiency. On the contrary, bundling removes the internal competition and the external competition among bundles makes it optimal for each upstream firm to sell only the products belonging to the best k. This unambiguous welfare-enhancing effect of bundling is novel.

Keywords: Bundling; Competition among Portfolios; Limited Slots (or Shelf Space) (search for similar items in EconPapers)
JEL-codes: D4 K21 L13 L41 L82 (search for similar items in EconPapers)
Date: Written 2007-09

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Working Papers from NET Institute
Series data maintained by Nicholas Economides ().