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Bundling, Competition and Quality Investment: A Welfare Analysis

Alessandro Avenali, Anna D’Annunzio and Pierfrancesco Reverberi ()
Authors registered in the RePEc Author Service: Anna D'Annunzio

Review of Industrial Organization, 2013, vol. 43, issue 3, 241 pages

Abstract: We investigate how bundling affects investment in product quality, and derive welfare implications. A monopolist in a primary market competes with a rival in a complementary market. Bundling is the monopolist’s preferred strategy, since it either extracts surplus from the rival’s investment, or forces the rival to provide low quality. Bundling may reduce welfare without foreclosing the rival, but improves welfare when preventing undesirable investment. Since prohibiting bundling is not appropriate, we introduce a price test for bundled offers that preserves efficiencies from both bundling and quality investment, thereby improving welfare relative to the ‘do-nothing’ scenario. We consequently argue that this test should be applied whenever possible. Copyright Springer Science+Business Media New York 2013

Keywords: Bundling; Quality investment; Vertical differentiation; Price discrimination; Price test; L13; L41 (search for similar items in EconPapers)
Date: 2013
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Working Paper: Bundling, Competition and Quality Investment: a Welfare Analysis (2011) Downloads
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DOI: 10.1007/s11151-013-9378-8

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