Bundling and Quality Assurance

48 Pages Posted: 12 Sep 2015 Last revised: 22 Jun 2018

See all articles by James D. Dana

James D. Dana

Northeastern University - Department of Economics; Northeastern University - Department of International Business and Strategy

Kathryn E. Spier

Harvard University - Law School - Faculty; National Bureau of Economic Research (NBER)

Date Written: August 10, 2017

Abstract

With imperfect private monitoring, a firm selling two experience goods can increase both producer and consumer surplus by bundling. Bundling constrains consumers to buy two products, making consumers better informed and ensuring that they use tougher punishment strategies. Both increased monitoring and increased punishment benefit other consumers, so bundling overcomes a free‐rider problem. The social value of bundling is even larger if consumers cannot attribute a negative signal to the specific product that generated it, or if one of the two goods is a durable and the other is a complementary nondurable. Our results are robust to mixed bundling.

Keywords: bundling, experience goods, product quality

JEL Classification: L42, D82, K21, D04

Suggested Citation

Dana, James D. and Spier, Kathryn E., Bundling and Quality Assurance (August 10, 2017). RAND Journal of Economics, Vol. 49, No. 1, 2018, Northeastern U. D’Amore-McKim School of Business Research Paper No. 2658922 , Available at SSRN: https://ssrn.com/abstract=2658922 or http://dx.doi.org/10.2139/ssrn.2658922

James D. Dana

Northeastern University - Department of Economics ( email )

301 Lake Hall
Boston, MA 02115
United States
617-373-7517 (Phone)

HOME PAGE: http://www.economics.neu.edu/dana/

Northeastern University - Department of International Business and Strategy

360 Huntington Ave
Boston, MA 02115
United States

Kathryn E. Spier (Contact Author)

Harvard University - Law School - Faculty ( email )

1575 Massachusetts
Hauser 302
Cambridge, MA 02138
United States
(617) 496-0019 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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