Endogenous Product Boundary

28 Pages Posted: 7 Dec 2016

See all articles by Takanori Adachi

Takanori Adachi

Kyoto University - Graduate School of Management; Kyoto University - Graduate School of Economics

Takeshi Ebina

Meiji University - School of Commerce

Makoto Hanazono

Nagoya University - Graduate School of Economics

Date Written: January 2017

Abstract

This study analyzes the determinants of product boundary choice as discriminatory pricing. Specifically, we consider a model where a monopolist sells a base product with an add‐on valuable only if it is consumed along with the base product. An important feature of this model is that this additional value is contingent on the valuation of the base product. We show that separation, in which case only the base product is sold, yields a higher profit than integration, where only a bundled package is sold, if and only if the range of the add‐on value exceeds a threshold value and that separation is more likely to become optimal as the degree of positive contingency increases. As for welfare, consumer surplus in case of separation is always lower than that when the seller is constrained to sell the bundled package.

Suggested Citation

Adachi, Takanori and Ebina, Takeshi and Hanazono, Makoto, Endogenous Product Boundary (January 2017). The Manchester School, Vol. 85, Issue 1, pp. 13-40, 2017, Available at SSRN: https://ssrn.com/abstract=2881025 or http://dx.doi.org/10.1111/manc.12134

Takanori Adachi (Contact Author)

Kyoto University - Graduate School of Management ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Kyoto University - Graduate School of Economics ( email )

36-1 Yoshida-honmachi
Sakyo-ku
Kyoto, 606-8501
Japan

Takeshi Ebina

Meiji University - School of Commerce ( email )

1-1 Kanda-Surugadai
Chiyoda-ku
Tokyo
Japan

Makoto Hanazono

Nagoya University - Graduate School of Economics ( email )

1 Furo-cho
Chikusa-ku
Nagoya, 464-8601
Japan

HOME PAGE: http://www2.soec.nagoya-u.ac.jp/~hanazono/index.html

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