Compatibility and bundling of stand and No stand-alone use complements
International Journal of Production Economics, 2018, vol. 201, issue C, 62-74
This study analyzes the profitability of compatibility and bundling for a duopolist introducing a new, monopoly complementary product of no individual use. In a market where there are both new consumers and legacies, I show the two-product seller's optimal product bundling strategy is compatibility between the complement and the single-product competitor's platform. Their optimal price bundling strategy is to offer the two products a la carte. If compatibility is not possible due to high costs, the two-product seller's profit maximizing strategy is dependent on (i) the relative size of its legacy base to the single-product seller's, (ii) the degree of differentiation between the competing products and (ii) the consumer valuation for the new product relative to the existing one.
Keywords: Compatibility; Price bundling; Product bundling; Competition; Legacy consumers (search for similar items in EconPapers)
JEL-codes: L15 L13 D43 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:201:y:2018:i:c:p:62-74
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