A Graphical Analysis of Bundling

Posted: 25 Dec 1998

See all articles by Michael A. Salinger

Michael A. Salinger

Boston University - Questrom School of Business

Abstract

By comparing the demand for a bundle and the vertical sum of the demands for its components, this article analyzes the profitability and welfare consequences of bundling. If it does not lower costs, bundling tends to be profitable when reservation values are negatively correlated and high relative to costs. If bundling lowers costs and costs are high relative to average reservation values, positively correlated reservation values increase the incentive to bundle. Bundling and charging a price equal to the sum of the components prices lowers consumer surplus. Bundling can, however, increase consumer surplus when it results in lower prices.

JEL Classification: L1

Suggested Citation

Salinger, Michael A., A Graphical Analysis of Bundling. JOURNAL OF BUSINESS Vol 68 No 1, January 1995. Available at SSRN: https://ssrn.com/abstract=5672

Michael A. Salinger (Contact Author)

Boston University - Questrom School of Business ( email )

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

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