Strategic and welfare implications of product bundling under Bertrand competition

Yang-Ming Chang and Hung-Yi Chen ()
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Hung-Yi Chen: Soochow University

Economics Bulletin, 2012, vol. 32, issue 4, 2899-2907

Abstract: This paper examines how Bertrand competition affects the welfare implications of bundling by a multi-product firm, which is a monopoly over one good and faces a single-product competitor in a second good. We find that the equilibrium bundle price is lower than the sum of the prices of the two goods sold separately. We also show that bundling benefits both firms but hurts consumers, despite that social welfare increases. Under price competition, bundling thus creates a conflict between the maximization of social welfare and consumer surplus.

Keywords: commodity bundling; multiproduct firm; social welfare; Bertrand price competition (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2012-10-22
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