Abstract

http://ssrn.com/abstract=1757214
 
 

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Mixed Bundling in Two-Sided Markets in the Presence of Installed Base Effects


Yong Chao


University of Louisville - College of Business - Department of Economics

Timothy Derdenger


Carnegie Mellon University - David A. Tepper School of Business

December 1, 2012

Management Science, 59(8): 1904-1926

Abstract:     
We analyze mixed bundling in two-sided markets where installed base effects are present 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. Consequently, as a by-product of this price discrimination, the two sides are better coordinated and social welfare is enhanced. We show unambiguously that platform participations increase on both sides of the market. After theoretically evaluating the impact mixed bundling has on prices and welfare, we take the model predictions to data from the portable video game console market. We find empirical support for all theoretical predictions.

Number of Pages in PDF File: 39

Keywords: Mixed Bundling, Two-Sided Markets, Price Discrimination, Portable Video Game Industry

JEL Classification: D42, L12, L4, L86

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Date posted: February 9, 2011 ; Last revised: September 4, 2013

Suggested Citation

Chao, Yong and Derdenger, Timothy, Mixed Bundling in Two-Sided Markets in the Presence of Installed Base Effects (December 1, 2012). Management Science, 59(8): 1904-1926. Available at SSRN: http://ssrn.com/abstract=1757214 or http://dx.doi.org/10.2139/ssrn.1757214

Contact Information

Yong Chao (Contact Author)
University of Louisville - College of Business - Department of Economics ( email )
Louisville, KY 40292
United States
(502)852-3573 (Phone)
(502)852-7672 (Fax)
HOME PAGE: http://yongchao.us
Timothy Derdenger
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
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