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Licensed Unlicensed Requires Authentication Published by De Gruyter November 12, 2012

Competitive Mixed Bundling of Vertically Differentiated Products

Illtae Ahn EMAIL logo and Kiho Yoon

Abstract

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.

Published Online: 2012-11-12

©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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