To bundle or not to bundle

Fang, Hanming; Norman, Peter

doi:10.1111/j.1756-2171.2006.tb00065.x

Cited by 134 publications

(98 citation statements)

References 19 publications

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“…The reduction in heterogeneity due to bundling happens because the variance in the sum of product valuations is lower than the sum of variances in product valuations, which then allows a monopolist to more effectively extract surplus. Bakos and Brynjolfsson [1999] have examined bundling for information goods and considered the presence of a menu of bundles on consumer choices with large bundles using asymptotic theory, whereas Fang and Norman [2006] provide exact results for the general case of a monopolist bundling a finite number of goods.…”

Section: Related Literaturementioning

confidence: 99%

The Dynamic Effects of Bundling as a Product Strategy

Derdenger

Kumar²

2013

Marketing Science

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Several key questions in bundling have not been empirically examined: Is mixed bundling more effective than pure bundling or pure components? Does correlation in consumer valuations make bundling more or less effective? Does bundling serve as a complement or substitute to network effects? To address these questions, we develop a consumer-choice model from micro-foundations to capture the essentials of our setting, the handheld video game market. We provide a framework to understand the dynamic, long-term impacts of bundling on demand. The primary explanation for the profitability of bundling relies on homogenization of consumer valuations for the bundle, allowing the firm to extract more surplus. We find bundling can be effective through a novel and previously unexamined mechanism of dynamic consumer segmentation, which operates independent of the homogenization effect, and can in fact be stronger when the homogenization effect is weaker. We also find that bundles are treated as separate products (distinct from component products) by consumers. Sales of both hardware and software components decrease in the absence of bundling, and consumers who had previously purchased bundles might delay purchases, resulting in lower revenues. We also find that mixed bundling dominates pure bundling and pure components in terms of both hardware and software revenues. Investigating the link between bundling and indirect network effects, we find that they act as substitute strategies, with a lower relative effectiveness for bundling when network effects are stronger.

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Section: Related Literaturementioning

confidence: 99%

The Dynamic Effects of Bundling as a Product Strategy

Derdenger

Kumar²

2013

Marketing Science

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“…In fact, some have argued that almost any commodity is best viewed as a bundle of characteristics. 13 However, once we take a narrower perspective of only considering bundles of commodities that are viable "stand-alone goods" in the sense that a consumer has a substantial willingness to pay for each component even if no other goods in the bundle are consumed, it is arguable that commonly bundled commodities mostly have non-rival properties, or, more generally, goods with a substantial …xed costs. Software, music, electronic libraries, and TV programming are obvious examples, and these kinds of goods are growing more important.…”

Section: Conclusion and Discussionmentioning

confidence: 99%

Optimal Provision of Multiple Excludable Public Goods

Fang¹,

Norman²

2008

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This paper studies the optimal provision mechanism for multiple excludable public goods when agents' valuations are private information. For a parametric class of problems with binary valuations, we demonstrate that the optimal mechanism involves bundling if a regularity condition, akin to a hazard rate condition, on the distribution of valuations is satisfied. Bundling alleviates the free riding problem in large economies in two ways: first, it may increase the asymptotic provision probability of socially efficient public goods from zero to one; second, it decreases the extent of use exclusions. If the regularity condition is violated, then the optimal solution replicates the separate provision outcome.Hanming Fang

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“…However, the effects are less clear for products with positive marginal cost, and when consumers are required to purchase products in which they have little or no interest (Armstrong, 1996). While increasing marginal costs tend to favour CP over PB, increasing the number of non-zero cost goods in the bundle may favour PB over a further pricing policy -uniform pricing (UP), where all items in the bundle are priced identically when offered for separate sale (Fang & Norman, 2006).…”

Section: A Quick Trip Through Bundling Theorymentioning

confidence: 99%

Competition and Vertical/Agglomeration Effects in Media Mergers: Bagging Bundle Benefits

Howell

Potgieter

2017

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractExisting frameworks (such as used by the New Zealand Commerce Commission in its recent evaluation of the proposed merger between Sky Television and Vodafone) require, as a first step, the definition of the relevant markets affected by the merger or vertical integration activity. Historic precedents in the telecommunications sector have tended towards finding that vertical agglomeration effects when network operators integrate downstream into the provision of applications and services to end-consumers are harmful to competition.Such Structure-Conduct-Performance methods of evaluating mergers and other aspects of market performance are problematic when the firm(s) concerned supply many different products, both together in various different bundle forms and separately as individual components. Defining the markets for (merger) analysis on the basis of only one of the components in a possible bundle that the (merged) firm may supply risks overlooking the complex interactions that occur on the demand side when consumers make their purchase decisions.This is especially likely to be an issue in the supply of internet applications and content bundled with broadband internet access. Consumers have heterogeneous preferences for different applications and content (hereafter 'content'), and will purchase (or access) many different content types. Even though ownership of rights to distribute one content may confer a degree of market power in for the owner-provider over those consumers with very strong preferences for this content over all others, it is not axiomatic that the firm will be able to exert this power over consumers whose preferences are more evenly distributed. The more variety there is in the content bundles available, and the more heterogeneous are consumers' preferences across the various content types, the greater is the number of possible markets in which interaction is likely to occur and the more problematic it becomes to identify the relevant markets for analysis of mergers and antitrust cases.We propose that classic merger and antitrust analysis based on econometric cost-benefit analysis can be augmented by using simulation and numerical analysis of a range of bundle offers expected to be relevant in decision-making. We develop a simple model and use it to demonstrate how this approach could have informed the recent New Zealand Commerce Commission decision about the proposed Sky-Vodafone merger by offering some ...

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To bundle or not to bundle

Cited by 134 publications

References 19 publications

The Dynamic Effects of Bundling as a Product Strategy

The Dynamic Effects of Bundling as a Product Strategy

Optimal Provision of Multiple Excludable Public Goods

Competition and Vertical/Agglomeration Effects in Media Mergers: Bagging Bundle Benefits

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