BUNDLING WITH QUALITY CHOICE

Hui-Ling Chung, Hung-Yi Chen, Jin-Li Hu () and Yan-Shu Lin

Hitotsubashi Journal of Economics, 2014, vol. 55, issue 2, 147-165

Abstract: Antitrust authorities consider commodity bundling as an extension of monopoly power to other markets which harms consumers. This paper analyzes quality competition and its effect on consumer surplus for the case of commodity bundling by a multi-product firm in a vertically differentiated industry. When the firm bundles a high quality good, we show that bundling negatively affects the quality of a competing good, consumer surplus, and welfare. When the firm bundles a low quality good instead, bundling raises the quality of a competing good, enhances consumer surplus, and may increase the welfare.

Keywords: bundling; vertical product differentiation; optimal quality; consumer surplus; leverage theory (search for similar items in EconPapers)
JEL-codes: D43 L13 L41 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:55:y:2014:i:2:p:147-165

DOI: 10.15057/26969

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