Abstract

http://ssrn.com/abstract=1857551
 
 

References (25)



 


 



Tying and Bundling in a Nearly Contestable Market


Michael A. Salinger


Boston University - School of Management

May 2011


Abstract:     
This paper presents a model of bundling and tying when the threat of entry provides the primary competitive constraint, but entrants have a disadvantage with respect to the incumbent, i.e., in a, “nearly contestable,” market. The entrant’s disadvantage can be with respect to marginal costs, the fixed cost of a good, or the fixed cost of an offering (which can be interpreted as a product differentiation advantage). The incumbent’s profits depend on both the nature of its cost advantage and the set of offerings. With an advantage in the fixed cost of an offering, the incumbent prefers mixed bundling if it is sustainable. With a marginal cost advantage, the incumbent prefers pure bundling, in which all customers buy both components. While the latter result might appear to formalize a commonly-alleged rationale for tying, the practice can be a Pareto improvement over mixed bundling and can cause total consumer surplus to increase relative to only selling the products separately. Mixed bundling can lower consumer surplus and be a form of product proliferation.

Number of Pages in PDF File: 45

Keywords: tying, bundling, contestable markets, product selection

JEL Classification: L10, L11, L14

working papers series





Download This Paper

Date posted: June 6, 2011  

Suggested Citation

Salinger, Michael A., Tying and Bundling in a Nearly Contestable Market (May 2011). Available at SSRN: http://ssrn.com/abstract=1857551 or http://dx.doi.org/10.2139/ssrn.1857551

Contact Information

Michael A. Salinger (Contact Author)
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-4408 (Phone)
Feedback to SSRN


Paper statistics
Abstract Views: 353
Downloads: 57
Download Rank: 222,005
References:  25

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.437 seconds