Bundling and Competition for Slots: On the Portfolio Effects of Bundling

38 Pages Posted: 6 Jul 2009

See all articles by Doh-Shin Jeon

Doh-Shin Jeon

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Domenico Menicucci

Universita' degli Studi di Firenze

Date Written: February 11, 2009

Abstract

We consider competition among n sellers when each of them sells a portfolio of distinct products to a buyer having limited slots (or shelf space). We study how bundling affects competition for slots. When the buyer has k number of slots, efficiency requires the slots to be allocated to the best k products among all products. We first find that without bundling, equilibrium often does not exist and hence the outcome is often inefficient. Bundling changes competition between individual products into competition between portfolios and reduces competition from rival products. Therefore, each seller has an incentive to bundle his products. Furthermore, under bundling, an efficient equilibrium always exists. In particular, in the case of Digital goods, all equilibria are efficient if firms do not use slotting contracts. However, inefficient equilibria can exist if firms use slotting contracts. In the case of physical goods, pure bundling also can generate inefficient equilibria. Finally, we identify portfolio effects of bundling and analyze the consequences on horizontal merger.

Keywords: Bundling, Portfolios, Slots (or Shelf Space), Pure Bundling, Slotting Contracts

JEL Classification: D4, K21, L13, L41, L82

Suggested Citation

Jeon, Doh-Shin and Menicucci, Domenico, Bundling and Competition for Slots: On the Portfolio Effects of Bundling (February 11, 2009). Available at SSRN: https://ssrn.com/abstract=1428364 or http://dx.doi.org/10.2139/ssrn.1428364

Doh-Shin Jeon (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34) 93 542 16 57 (Phone)
(34) 93 542 17 46 (Fax)

Domenico Menicucci

Universita' degli Studi di Firenze ( email )

via delle pandette 9
Firenze, 50127
Italy
+39-055-4374666 (Phone)
+39-055-4374913 (Fax)

HOME PAGE: http://www.dmd.unifi.it/index.php?loc=personal&id=d.menicucci

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