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The Strategic Effect of Bundling: A New Perspective

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Abstract

This paper investigates the strategic effect of the bundling strategy that is adopted by a multi-product firm that produces two complementary goods and faces one single-product rival in each market. I consider both the Cournot and Bertrand cases. When firms compete in quantities, bundling is completely ineffective. Under price competition, selling as a package is profitable when market competition is particularly tough. In such circumstances, the multi-product firm resorts to bundling to dampen the negative impact of low brand differentiation and/or scarce product complementarity. However, overall prices increase as a result of bundling, and not only consumer surplus, but also total social welfare, shrink.

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Correspondence to Andrea Mantovani.

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Mantovani, A. The Strategic Effect of Bundling: A New Perspective. Rev Ind Organ 42, 25–43 (2013). https://doi.org/10.1007/s11151-012-9361-9

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