Some implications of pricing bundles

Authors

  • Xiao Huang,

    1. Department of Decision Sciences and MIS, John Molson School of Business, Concordia University, Montreal, QC H3G 1M8, Canada
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  • Mahesh Nagarajan,

    1. Operations and Logistics Division, Sauder School of Business, University of British Columbia, Vancouver, B.C. V6T 1Z2, Canada
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  • Greys Sošić

    Corresponding author
    1. Department of Information and Operations Management, Marshall School of Business, University of Southern California, Los Angeles, California 90089
    • Department of Information and Operations Management, Marshall School of Business, University of Southern California, Los Angeles, California 90089
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Abstract

In this article, we consider a problem in which two suppliers can sell their respective products both individually and together as a bundle, and study the impact of bundle pricing. Four pricing models (centralized, decentralized, coop–comp, and comp–coop) are analyzed with regard to the competition formats and sequences. As one would expect, the firms are always better off when pricing decisions are centralized. However, rather surprisingly, we find that firms may be worse off if the bundle prices are set in a cooperative way; we provide analytical characterization of those instances. Numerical studies show that these insights also hold for some nonlinear demand. © 2013 Wiley Periodicals, Inc. Naval Research Logistics, 2013

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