The Role of Cost in Determining When Firms Offer Bundles

53 Pages Posted: 9 Jun 2004 Last revised: 29 Jul 2022

See all articles by David S. Evans

David S. Evans

Market Platform Dynamics; Berkeley Research Group, LLC

Michael A. Salinger

Boston University - Questrom School of Business

Date Written: December 1, 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.

Keywords: economics of tying, tying in competitive markets, contestability, costs and tying, antitrust economics of tying

Suggested Citation

Evans, David S. and Salinger, Michael A., The Role of Cost in Determining When Firms Offer Bundles (December 1, 2005). Available at SSRN: https://ssrn.com/abstract=555818 or http://dx.doi.org/10.2139/ssrn.555818

David S. Evans (Contact Author)

Market Platform Dynamics ( email )

140 South Dearborn St.
Chicago, IL 60603
United States

Berkeley Research Group, LLC ( email )

99 High St.
Boston, MA 02110
United States

HOME PAGE: http://davidsevans.org

Michael A. Salinger

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-4408 (Phone)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
337
Abstract Views
2,172
Rank
163,377
PlumX Metrics