Bundling Revisited: Substitute Products and Inter-Firm Discounts

Mark Armstrong

No 574, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: This paper extends the standard model of bundling to allow products to be substitutes and for products to be supplied by separate sellers. Whether integrated or separate, firms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. When products are partial substitutes, this typically gives an integrated firm a greater incentive to offer a bundle discount (relative to the standard model with additive preferences), while product substitutability is often the sole reason why separate sellers wish to offer inter-firm discounts. When separate sellers negotiate their inter-firm discount, they can use the discount to relax competition.

Keywords: Bundling; Price discrimination; Oligopoly; Collusion (search for similar items in EconPapers)
JEL-codes: L11 L13 L42 (search for similar items in EconPapers)
Date: 2011-10-01
New Economics Papers: this item is included in nep-bec, nep-com, nep-ind and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Bundling revisited: substitute products and inter-firm discounts (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:wpaper:574

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