The Equivalence of Bundling and Advance Sales
8 Pages Posted: 8 Jul 2011
Date Written: July 5, 2011
We show that bundling and advance selling are equivalent when the consumers and the seller agree on the probability of each possible state of nature occurring and are risk-neutral, and when the seller can pre-commit to spot prices to be charged after the uncertainty about the state of nature is resolved. The result allows both researchers and practitioners to apply the insights from the vast literature on bundling to advance selling problems. We highlight several insights which are particularly relevant - for example, the interpretation of the correlation of consumer valuations in different possible states of the world.
Keywords: bundling, advance sales, advance purchase discounts
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