TY - JOUR
T1 - Competitive mixed bundling of vertically differentiated products
AU - Ahn, Illtae
AU - Yoon, Kiho
N1 - Funding Information:
∗We thank the editor and two anonymous referees for many invaluable suggestions. The second author acknowledges that this work was supported by a National Research Foundation of Korea Grant funded by the Korean government (NRF-2010-330-B00085).
PY - 2012
Y1 - 2012
N2 - We examine mixed bundling in a competitive environment that incorporates vertical product differentiation. We show that, compared to the equilibrium without bundling, (i) prices, profits and social welfare are lower, whereas (ii) consumer surplus is higher in the equilibrium with mixed bundling. In addition, the population of consumers who purchase both products from the same firm is larger in the equilibrium with mixed bundling. These results are largely in line with those obtained in the previous literature on competitive mixed bundling with horizontal differentiation. Further, we conduct a comparative static analysis with respect to changes in quality differentiation parameters. When the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates.
AB - We examine mixed bundling in a competitive environment that incorporates vertical product differentiation. We show that, compared to the equilibrium without bundling, (i) prices, profits and social welfare are lower, whereas (ii) consumer surplus is higher in the equilibrium with mixed bundling. In addition, the population of consumers who purchase both products from the same firm is larger in the equilibrium with mixed bundling. These results are largely in line with those obtained in the previous literature on competitive mixed bundling with horizontal differentiation. Further, we conduct a comparative static analysis with respect to changes in quality differentiation parameters. When the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates.
KW - Competitive bundling
KW - Mixed bundling
KW - Quality advantage
KW - Vertical differentiation
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U2 - 10.1515/1935-1682.3162
DO - 10.1515/1935-1682.3162
M3 - Article
AN - SCOPUS:84908212812
SN - 1935-1682
VL - 12
JO - B.E. Journal of Economic Analysis and Policy
JF - B.E. Journal of Economic Analysis and Policy
IS - 1
M1 - 50
ER -