Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Monday, March 7, 2011

Competitive mixed bundling of vertically differentiated products

Posted by D. Daniel Sokol

Illtae Ahn (Department of Economics, Chung-Ang University, Seoul, Republic of Korea) and Kiho Yoon (Department of Economics, Korea University, Seoul, Republic of Korea) address Competitive mixed bundling of vertically differentiated products.

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. Further, when the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease but social welfare and consumer surplus increase. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/03/competitive-mixed-bundling-of-vertically-differentiated-products-.html

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