Positive Effects of Bundling on Rival's Profit and Social Welfare in a Vertical Relationship

Qing Hu () and Tomomichi Mizuno
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Qing Hu: Kushiro Public University of Economics

Economics Bulletin, 2021, vol. 41, issue 1, 85-92

Abstract: The effects of bundling on the rival's profit and social welfare are analyzed in this paper. We consider a vertical relationship with an upstream firm offering inputs to two downstream firms. In the downstream market, one firm produces two products and can bundle them, while the other produces only one product. We find that bundling is preferred and can also increase the rival firm's profit and social welfare, which is in contrast to the conventional wisdom that profitable bundling never increases the profit of the rival and social welfare in a Cournot competition.

Keywords: Bundling; vertical market; Cournot competition; duopoly (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2021-03-10
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