Bundling and Joint Marketing by Rival Firms

29 Pages Posted: 9 May 2014

See all articles by Thomas D. Jeitschko

Thomas D. Jeitschko

Michigan State University - Department of Economics

Yeonjei Jung

Korea Energy Economics Institute

Jaesoo Kim

Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2014

Abstract

We study joint marketing arrangements by competing firms who engage in price discrimination between consumers who patronize only one firm (single purchasing) and those who purchase from both competitors (bundle purchasers). Two types of joint marketing are considered. Firms either commit to a component-price that applies to bundle-purchasers and then firms set stand-alone prices for single purchasers; or firms commit to a rebate off their stand alone price that will be applied to bundle-purchasers, and then firms set their stand alone prices. Both methods allow firms to raise prices and earn higher profits. However, the effect of price discrimination on social welfare depends on how prices are chosen. The rebate joint marketing scheme increases joint purchasing, whereas bundle pricing diminishes bundle purchases. If the marginal social value of a bundle over a single purchase is large, the former increases total welfare. However, welfare can also increase with bundle pricing compared to non-discriminatory pricing.

Keywords: Bundling, Joint Marketing, Price Discrimination

JEL Classification: D4, D8

Suggested Citation

Jeitschko, Thomas D. and Jung, Yeonjei and Kim, Jaesoo, Bundling and Joint Marketing by Rival Firms (April 2014). Available at SSRN: https://ssrn.com/abstract=2434065 or http://dx.doi.org/10.2139/ssrn.2434065

Thomas D. Jeitschko (Contact Author)

Michigan State University - Department of Economics ( email )

110 Marshall-Adams Hall
East Lansing, MI 48824
United States
517-355-8302 (Phone)
517-432-1068 (Fax)

HOME PAGE: http://www.msu.edu/~jeitschk/

Yeonjei Jung

Korea Energy Economics Institute ( email )

Ulsan
Korea, Republic of (South Korea)

Jaesoo Kim

Indiana University Purdue University Indianapolis (IUPUI) - Department of Economics ( email )

425 University Boulevard
Indianapolis, IN 46202-5140
Germany

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