Strategic Role of Retailer Bundling in a Distribution Channel

Qingning Cao, Xianjun Geng and Jun Zhang

Journal of Retailing, 2015, vol. 91, issue 1, 50-67

Abstract: We study retailer bundling in a distribution channel when the manufacturer for one bundled product can strategically set the wholesale price. We show that the retailer can use a bundling option as a strategic leverage to extract concessions from the manufacturer in form of a lower wholesale price. This finding contributes a novel rationale for retailer bundling to the bundling literature. Whenever the bundling option causes this concession-extraction effect, the retailer always benefits from the lower wholesale price. The manufacturer, nevertheless, does not necessarily suffer because bundling can lead to a higher consumer demand. We also show that the manufacturer's marginal production cost plays a critical role in driving the retailer's bundling decision, concession extraction behavior and consequently the total channel profit.

Keywords: Channel; Bundling; Concession extraction (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jouret:v:91:y:2015:i:1:p:50-67

DOI: 10.1016/j.jretai.2014.10.005

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