Bundling and Economies of Scope
Communications & Strategies, Special Issue, November 2008
13 Pages Posted: 8 Apr 2009
Date Written: April 7, 2009
This paper examines how bundling and economies of scope impact competition. We model a duopoly where two firms, produce the two components of a system. We show that firms always have a unilateral incentive to target a discount to consumers who buy the two goods close to the same firm. In our model, the Nash equilibrium is one of mixed bundling. The economies of scope (created by bundling) act to reduce (increase) firms' profits when the market is completely (partially) covered. Moreover, economies of scope act to increase consumer surplus.
Keywords: Bundling, economies of scope, triple and quadruple play
JEL Classification: L11, M31
Suggested Citation: Suggested Citation