Segmentation Versus Integration: The Case of Non-Homogeneous Groups

Abstract

The paper adds another dimension to the literature on bundling as a profit-maximizing strategy. We compare policies of joint consumption and segmentation of a profit maximizer. In the case of positive social influences between two population groups 'bundling' is preferred to segmentation, while under negative symmetric inter-group effects (based perhaps on race, religion, status etc.) segmentation is preferred. Our contribution lies in the examination of joint consumption versus segmentation under asymmetric inter-group effects, with and without price discrimination. This can occur when non-homogeneous groups share the same residency, school or other local public institutions.