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Optimal Bundling and Pricing Under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products

21 Pages Posted: 14 Feb 2014  

R. Venkatesh

Katz Graduate School of Business, University of Pittsburgh

Wagner A. Kamakura

Rice University

Date Written: 2003

Abstract

We develop an analytical model of contingent valuations and address two questions of import to a monopolist: (i) should a given pair of complements or substitutes be sold separately (pure components), together (pure bundling), or both (mixed bundling), and at what prices? (ii) How do optimal bundling and pricing strategies for complements and substitutes differ from those for independently valued products? We find that the combination of marginal cost levels and the degree of complementarity or substitutability determines which of the three bundling strategies is optimal. Complements and substitutes should typically be priced higher than independently valued products.

Suggested Citation

Venkatesh, R. and Kamakura, Wagner A., Optimal Bundling and Pricing Under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products (2003). Journal of Business, Vol. 76, No. 2, 2003. Available at SSRN: https://ssrn.com/abstract=2395239

R. Venkatesh

Katz Graduate School of Business, University of Pittsburgh ( email )

Pittsburgh, PA 15260
United States

HOME PAGE: http://www.business.pitt.edu/faculty/venkatesh.html

Wagner A. Kamakura (Contact Author)

Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
(713) 348-6307 (Phone)

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