Gaussian Demand and Commodity Bundling

Schmalensee, Richard

doi:10.1086/296250

Cited by 500 publications

(361 citation statements)

References 7 publications

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“…Under a very general set of conditions, the law of large numbers guarantees that the distribution of valuations for the bundle has proportionately fewer extreme values. As Schmalensee (1984) has argued, such a reduction in "buyer diversity" typically helps sellers extract higher profits from all consumers.…”

Section: Overviewmentioning

confidence: 99%

“…The more formal analyses by Schmalensee (1984), McAfee et al (1989), and Salinger (1995) also focused on bundles of two goods. Schmalensee assumed a bivariate Gaussian distribution of reservation prices, and, through a combination of analytic derivation and numerical techniques, showed that pure bundling typically reduces the diversity of the population of consumers, thereby enabling sellers to extract more consumers' surplus.…”

Section: The Bundling Literaturementioning

confidence: 99%

“…9 Thus, our model predicts that since bits are dramatically cheaper to reproduce than atoms, the optimal bundling strategies differ substantially for information goods as compared to physical goods. As pointed out by Schmalensee (1984), bundling can increase a seller's profits by reducing the dispersion of buyer valuations. However, if marginal costs are large, the seller will usually want to increase, rather than decrease, the dispersion of valuations.…”

Section: The Role Of Marginal Costsmentioning

confidence: 99%

“…If an unfortunate visitor were too tall, Procustes would chop off his legs to fit; a guest who was too short would be stretched as needed. 15 Thus, for large n, Corollary 3b can be seen as an application of Schmalensee's (1984) finding that it is often profitable to bundle two goods with Gaussian demand. 16 Information goods are often highly valued only by a relatively small set of consumers, which is consistent with such a demand function.…”

Section: Applications Of the Basic Modelmentioning

confidence: 99%

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Bundling Information Goods: Pricing, Profits, and Efficiency

1999

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W e study the strategy of bundling a large number of information goods, such as those increasingly available on the Internet, and selling them for a fixed price. We analyze the optimal bundling strategies for a multiproduct monopolist, and we find that bundling very large numbers of unrelated information goods can be surprisingly profitable. The reason is that the law of large numbers makes it much easier to predict consumers' valuations for a bundle of goods than their valuations for the individual goods when sold separately. As a result, this "predictive value of bundling" makes it possible to achieve greater sales, greater economic efficiency, and greater profits per good from a bundle of information goods than can be attained when the same goods are sold separately. Our main results do not extend to most physical goods, as the marginal costs of production for goods not used by the buyer typically negate any benefits from the predictive value of large-scale bundling.While determining optimal bundling strategies for more than two goods is a notoriously difficult problem, we use statistical techniques to provide strong asymptotic results and bounds on profits for bundles of any arbitrary size. We show how our model can be used to analyze the bundling of complements and substitutes, bundling in the presence of budget constraints, and bundling of goods with various types of correlations and how each of these conditions can lead to limits on optimal bundle size. In particular we find that when different market segments of consumers differ systematically in their valuations for goods, simple bundling will no longer be optimal. However, by offering a menu of different bundles aimed at each market segment, bundling makes traditional price discrimination strategies more powerful by reducing the role of unpredictable idiosyncratic components of valuations. The predictions of our analysis appear to be consistent with empirical observations of the markets for Internet and online content, cable television programming, and copyrighted music.

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Section: Overviewmentioning

confidence: 99%

Section: The Bundling Literaturementioning

confidence: 99%

Section: The Role Of Marginal Costsmentioning

confidence: 99%

Section: Applications Of the Basic Modelmentioning

confidence: 99%

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Bundling Information Goods: Pricing, Profits, and Efficiency

1999

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“…Assumindo que os consumidores valorizam cada um dos elementos de forma independente, os autores mostram que a decisão do monopolista depende da efetiva forma de distribuição das valorações dos consumidores. Schmalensee (1984) analisa o problema quando essa distribuição é uma distribuição normal bivariada e conclui que alguns tipos de pacotes são preferíveis, se não houver correlação positiva perfeita entre as valorações dos consumidores. McAfee et alii (1989) adotam uma distribuição bivariada contínua e caracterizam situações em que a opção pela estratégia mista é superior às vendas avulsas.…”

Section: Revisão Da Literaturaunclassified

Efeitos perversos de fusões acima de qualquer suspeita: um modelo de integração de produtores de bens complementares

Graça¹

2007

Rev. Bras. Econ.

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Fusões entre firmas de bens complementares, conforme o senso comum, não causam preocupações anticoncorrenciais. Assim, as autoridades de defesa da concorrência não costumam questioná-las. Entretanto, apresentase um modelo mostrando que, em uma indústria oligopolística de bens complementares e diferenciados em que as firmas competem em preços, o sentido da mudança no nível de bem-estar do consumidor, após a integração das firmas líderes de qualidade dos respectivos bens complementares, depende da distribuição de valoração que os consumidores atribuem a tais produtos. Usa-se a família de distribuições sobre arcos elípticos, parametrizados pelo semi-eixo menor da elipse correspondente para se derivar o resultado. According to common wisdom, mergers between complementary-goods firms should not raise anti-competitive concerns. Regulatory authorities rarely challenge them indeed. In this paper, I offer an alternative perspective in a model of price-competition in a complementary oligopoly industry with differentiated goods. The sign of the change in the consumer surplus, after the merger between the quality leaders of the respective complementary goods, depends however upon the consumers' valuation distribution over these products. A family of elliptic-arc distributions, parameterized by the elliptic small semi-axis, is usedto derive the result. * As opiniões e idéias colocadas nesse artigo não refletem, necessariamente, as das instituições às quais estou ou estive afiliado.Agradeço a Serdar Dalkir e David Eisenstadt pelas discussões, sugestões e comentários, mas assumo toda a responsabilidade por quaisquer eventuais falhas encontradas no texto.

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