Bundling and Quality Assurance
48 Pages Posted: 12 Sep 2015 Last revised: 22 Jun 2018
Date Written: August 10, 2017
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: Suggested Citation