Bundling revisited: substitute products and inter-firm discounts

Mark Armstrong

MPRA Paper from University Library of Munich, Germany

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 bundling discounts when demand for the bundle is elastic relative to demand for stand-alone products. Separate firms often have a unilateral incentive to offer inter-firm bundle discounts, although this depends on the detailed form of substitutability. Bundle discounts mitigate the innate substitutability of products, which can relax competition between firms and induce an integrated firm to lower all of its prices when it follows a bundling strategy.

Keywords: Price discrimination; bundling; oligopoly; loyalty pricing (search for similar items in EconPapers)
JEL-codes: D43 L42 M31 (search for similar items in EconPapers)
Date: 2010-11
New Economics Papers: this item is included in nep-bec, nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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https://mpra.ub.uni-muenchen.de/26782/1/MPRA_paper_26782.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/32223/1/MPRA_paper_32223.pdf revised version (application/pdf)

Related works:
Working Paper: Bundling Revisited: Substitute Products and Inter-Firm Discounts (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:26782

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