Packaging, Selection, and Correlated Firm Behavior

7 Pages Posted: 8 Dec 2011

Date Written: March 25, 2008

Abstract

Many firms do not charge separately for services such as delivery, parking, and acceptance of payment cards (‘packaging’). I show that for a range of service costs, multiple equilibria arise and each firm chooses to offer a service if and only if its competitors offer the service as well. Intuitively, no firm is willing to be a sole offerer of the service even when offering the service is efficient: the offering firm serves disproportionally many service users, which constitutes ‘bad’ selection when service costs cannot be recovered separately.

Keywords: Market Structure, Pricing, Strategic Complements, Bundling, Packaging

JEL Classification: D4, L11

Suggested Citation

Eilat, Assaf, Packaging, Selection, and Correlated Firm Behavior (March 25, 2008). Available at SSRN: https://ssrn.com/abstract=1969613 or http://dx.doi.org/10.2139/ssrn.1969613

Assaf Eilat (Contact Author)

Compass Lexecon ( email )

1101 K Street NW
8th Floor
Washington, DC 20005
United States

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