Abstract

http://ssrn.com/abstract=555818
 
 

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The Role of Cost in Determining When Firms Offer Bundles


David S. Evans


University of Chicago Law School; University College London; Global Economics Group

Michael A. Salinger


Boston University - School of Management

December 2005


Abstract:     
We incorporate marginal cost savings from bundling, fixed costs of product
offerings, and variation in customer preferences into a model of bundling and tying. To focus on cost effects, we assume perfectly contestable markets and analyze sustainable product offerings. Pure bundling can arise either because few people demand only one component or because, with high fixed costs, a single product is the efficient way to satisfy customers with diverse tastes. Two cases - sinus headache tablets and a package of four foreign plug adapters - illustrate the distinctions identified by the model.

Number of Pages in PDF File: 53

Keywords: Tying, Bundling, Contestable Markets

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Date posted: June 9, 2004  

Suggested Citation

Evans, David S. and Salinger, Michael A., The Role of Cost in Determining When Firms Offer Bundles (December 2005). Available at SSRN: http://ssrn.com/abstract=555818 or http://dx.doi.org/10.2139/ssrn.555818

Contact Information

David S. Evans (Contact Author)
University of Chicago Law School ( email )
1111 E. 60th St.
Chicago, IL 60637
United States
University College London ( email )
London WC1E OEG
United Kingdom
Global Economics Group ( email )
1400 S. Dearborn, Suite 400
Chicago, IL 60603
United States
Michael A. Salinger
Boston University - School of Management ( email )
595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-4408 (Phone)
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References:  27
Citations:  7

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