Output Commitment Through Product Bundling: Experimental Evidence
Tinbergen Institute Discussion Paper No. 11-170/1
40 Pages Posted: 29 Nov 2011 Last revised: 20 Feb 2019
Date Written: July 14, 2013
We analyze the impact of product bundling in experimental markets. One firm has monopoly power in a first market but competes with another firm in a second market. We compare treatments where the multiproduct firm (i) always bundles, (ii) never bundles, and (iii) chooses whether or not to bundle. We also contrast the simultaneous and the sequential order of moves in the duopoly market. Our data indicate support for the theory of product bundling: with bundling and simultaneous moves, the multiproduct firm offers the predicted number of units. When the multiproduct firm is the Stackelberg leader, the predicted equilibrium is better attained with bundling, especially when it chooses to bundle, even though in theory bundling should not make a difference here. In sum, bundling works as a commitment device that enables the transfer of market power from one market to another.
Keywords: Cournot, commitment, experiments, product bundling, Stackelberg
JEL Classification: C92, D43, L11, L12, L41
Suggested Citation: Suggested Citation