Bundling or unbundling? Integrated simulation model of optimal pricing strategies

Tomasz Kopczewski (), Maciej Sobolewski and Ireneusz Miernik

International Journal of Production Economics, 2018, vol. 204, issue C, 328-345

Abstract: Bundling is the practice of selling goods together in a package. The extant research has recognised the role of three elements affecting the profitability of bundling strategies: (i) heterogeneity of consumer's reservation prices and their dependence structure; (ii) complementarity of the demand and (iii) economies of scale and scope in production. These major elements are well defined but have never been integrated into one model. We present an integrated simulation model and show how these three elements affect the profitability of different pricing strategies: pure components, pure bundling, and mixed bundling. This approach used recognises the complex relationships which cannot be directly inferred from a purely analytical approach. Multi-scenario analytical scheme flexibly adjusts to different real market conditions. We adopt copula functions in a simulation framework and propose a general form of cost function. We show that the effects of substitutability of the bundle components can be mitigated or even reversed by other supply and demand side factors, such as the correlation of demands or economies of scope. In consequence, studies which do not integrate all these elements can be misleading in the assessment of bundling performance.

Keywords: Bundling; Simulation; Economies of scale and scope; Copula function; Non-additivity of valuations (search for similar items in EconPapers)
JEL-codes: C15 D21 L12 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527318303359
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:204:y:2018:i:c:p:328-345

DOI: 10.1016/j.ijpe.2018.08.017

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().