PROFITABILITY OF PRODUCT BUNDLING

Authors

  • Yongmin Chen,

    1. University of Colorado, Boulder, U.S.A.; Columbia University, U.S.A.
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  • Michael H. Riordan

    1. University of Colorado, Boulder, U.S.A.; Columbia University, U.S.A.
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    • For helpful comments, we thank three referees, Jay P. Choi, Hanming Fang, and Guofu Tan, participants of the 2010 Workshop on Law and Economics at Hitotsubashi University, the 2010 Shanghai Microeconomics Workshop (SHUFE), the 2010 Summer Conference on Industrial Organization (UBC, Vancouver), and seminars at Columbia University, University of Rochester, University of Virginia, and Yonsei University. Please address correspondence to: Michael H. Riordan, Department of Economics, Columbia University, 1022 International Affairs Building, Mail Code 3308-420 West 118th Street, New York, NY 10027. E-mail: mhr21@columbia.edu.


  • Manuscript received July 2011; revised February 2012.

Abstract

Using copulas to model the stochastic dependence of values, this article establishes new general conditions for the profitability of product bundling. A multiproduct monopolist generally achieves higher profit from mixed bundling than from separate selling if consumer values for two of its products are negatively dependent, are independent, or have sufficiently limited positive dependence. The profitability of monopoly bundling also extends to situations where a multiproduct firm competes with a single-product rival.

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