Option Package Bundling

Takanori Adachi, Takeshi Ebina and Makoto Hanazono

No 785, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper analyzes the optimality of package bundling by focusing on the ?main and accessory?relationship between two goods. In particular, we consider option package bundling in which an optional good is valuable only if it is consumed together with a certain (nonoptional) base good. We develop a model of option package bundling for a monopolist in which buyers?valuations are independently and uniformly distributed. We also allow inter-relationship between valuations by assuming that the reservation value of the bundle can be greater or less than the sum of the innate value of both goods. Our analysis observes that mixed bundling, in which the base good is sold with or without the optional good, yields a higher pro?t than pure bundling if and only if the range of the optional good valuation exceeds a threshold value. We then conduct a welfare analysis of the bundling choice. The result is surprising: pure bundling is always desirable from the social welfare viewpoint when a monopolist chooses mixed bundling.

Keywords: Multiproduct monopoly; Bundling; Optional goods; Interdepen-dent valuations. (search for similar items in EconPapers)
JEL-codes: D42 L11 (search for similar items in EconPapers)
Date: 2011-10
New Economics Papers: this item is included in nep-ind
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Citations: View citations in EconPapers (1)

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