The Role of Cost in Determining When Firms Offer Bundles

53 Pages Posted: 9 Jun 2004  

David S. Evans

Global Economics Group; University College London

Michael A. Salinger

Boston University - Questrom School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

We incorporate marginal cost savings from bundling, fixed costs of product
offerings, and variation in customer preferences into a model of bundling and tying. To focus on cost effects, we assume perfectly contestable markets and analyze sustainable product offerings. Pure bundling can arise either because few people demand only one component or because, with high fixed costs, a single product is the efficient way to satisfy customers with diverse tastes. Two cases - sinus headache tablets and a package of four foreign plug adapters - illustrate the distinctions identified by the model.

Keywords: Tying, Bundling, Contestable Markets

Suggested Citation

Evans, David S. and Salinger, Michael A., The Role of Cost in Determining When Firms Offer Bundles (December 2005). Available at SSRN: https://ssrn.com/abstract=555818 or http://dx.doi.org/10.2139/ssrn.555818

David S. Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

Michael A. Salinger

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States
617-353-4408 (Phone)

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