Mixed Bundling in Two-Sided Markets: Theory and Evidence

Posted by D. Daniel Sokol

Yong Chao, University of Louisville - College of Business - Department of Economics and Timothy Derdenger, Carnegie Mellon University - David A. Tepper School of Business discuss Mixed Bundling in Two-Sided Markets: Theory and Evidence.

ABSTRACT: We analyze mixed bundling in two-sided markets and find that the pricing structure deviates from traditional bundling as well as the standard two-sided markets literature – we determine prices on both sides fall with bundling. Mixed bundling acts as a price discrimination tool segmenting the market more efficiently and functions as a coordination device helping solve "the chicken or the egg" problem in two-sided markets. After theoretically evaluating the impact mixed bundling has on prices and welfare, we test the model predictions with new data from the portable video game console market. We find empirical support for all theoretical predictions.