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Bundling can signal high quality

James D. Dana

International Journal of Industrial Organization, 2020, vol. 69, issue C

Abstract: When consumers have noisy information, bundling experience goods can signal high quality in a simple static model. When consumers are partially informed, bundling has a bigger negative impact on the sales of a low-quality firm than on the sales of a firm with two high-quality products. Bundling can also signal high quality by restricting total sales even when consumers are uninformed. However, I argue this is not a likely explanation for bundling because raising prices is always a more profitable way to restrict total sales than bundling.

Keywords: Bundling; Product quality; Signaling; Reputation (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.ijindorg.2020.102579

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Handle: RePEc:eee:indorg:v:69:y:2020:i:c:s0167718720300011