Bundling Revisited: Substitute Products and Inter-Firm Discounts.

Working paper

This paper extends the standard model of bundling to allow products to be sub- stitutes and for products to be supplied by separate sellers. Whether integrated or separate, …rms have an incentive to introduce a bundling discount when demand for the bundle is elastic relative to demand for stand-alone products. When products are partial substitutes, this typically gives an integrated …rm a greater incentive to o¤er a bundle discount (relative to the standard model with additive preferences), while product substitutability is often the sole reason why separate sellers wish to o¤er inter-…firm discounts. When separate sellers negotiate their inter-…firm discount, they can use the discount to relax competition.

Authors: Armstrong, M

• Publisher: Department of Economics (University of Oxford)
• Series: Discussion paper series
• Publication date: 2011-10-01
• Language: English