BUNDLING COMPETITION BETWEEN MULTI-PRODUCT AND SINGLE-PRODUCT FIRMS

Abstract

This paper analyzes a simple model where a multi-product firm competes with single-product firms possibly with bundling strategy. Mixed bundling is theoretically known as an effective business tool even in the symmetric competition as well as for the monopoly. Contrary to the literature, this paper shows that mixed bundling is dominated by component pricing or pure bundling. The result holds regardless of the product complementarity by the multi-product firm. In addition, it is shown that linear component pricing will be utilized for low complementarity while pure bundling strategy will be chosen for high complementarity.