Bundling in Oligopoly: Revenue Maximization with Single-Item Competitors

Moshe Babaioff, Linda Cai and Brendan Lucier

Papers from arXiv.org

Abstract: We consider a principal seller with $m$ heterogeneous products to sell to an additive buyer over independent items. The principal can offer an arbitrary menu of product bundles, but faces competition from smaller and more agile single-item sellers. The single-item sellers choose their prices after the principal commits to a menu, potentially under-cutting the principal's offerings. We explore to what extent the principal can leverage the ability to bundle product together to extract revenue. Any choice of menu by the principal induces an oligopoly pricing game between the single-item sellers, which may have multiple equilibria. When there is only a single item this model reduces to Bertrand competition, for which the principal's revenue is $0$ at any equilibrium, so we assume that no single item's value is too dominant. We establish an upper bound on the principal's optimal revenue at every equilibrium: the expected welfare after truncating each item's value to its revenue-maximizing price. Under a technical condition on the value distributions -- that the monopolist's revenue is sufficiently sensitive to price -- we show that the principal seller can simply price the grand-bundle and ensure (in any equilibrium) a constant approximation to this bound (and hence to the optimal revenue). We also show that for some value distributions violating our conditions, grand-bundle pricing does not yield a constant approximation to the optimal revenue in any equilibrium.

Date: 2024-06
New Economics Papers: this item is included in nep-com, nep-cta, nep-gth, nep-ind and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2406.13835 Latest version (application/pdf)

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:arx:papers:2406.13835

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().