A Constructive Characterization of Optimal Bundling

Zhiming Feng

Papers from arXiv.org

Abstract: This paper studies a monopolist selling multiple goods to a consumer with one-dimensional private types. I provide a sufficient condition under which the monopolist's problem is equivalent to finding the upper envelope of the marginal revenue curves. This approach guarantees that the optimal mechanism is deterministic and can be implemented via a menu of bundles. I further characterize this upper envelope using a dominance notion. This characterization yields a constructive algorithm to compute the optimal menu by iteratively eliminating dominated bundles. As my main application, I use this framework to introduce and provide sufficient conditions for the optimality of tree bundling, a common but previously unmodeled sales strategy where the optimal menu contains a root bundle but features distinct upgrade paths.

Date: 2025-02, Revised 2025-09
New Economics Papers: this item is included in nep-des, nep-mic and nep-reg
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