Strategic decisions of a multi-product firm under Bertrand competition

ABSTRACT This research examines three strategies that a multi-product firm can adopt when facing a single-product entrant under Bertrand competition: (i) staying in the duopoly market, (ii) abandoning the duopoly market, and (iii) bundling the two goods. When the competing good is homogenous, bundling is the most profitable strategy if the product differentiation of the two goods produced by the multi-product firm is not too high. When the competing good is heterogeneous, the preferred strategy of the multi-product firm and the welfare ranking depend on the substitutability of the competing good and the degree of product differentiation between the two goods.