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Bundling and Competition for Slots

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Abstract:

We consider competition between sellers selling multiple distinct products to a buyer having k slots. Under independent pricing, a pure strategy equilibrium often does not exist, and equilibrium in mixed strategy is never efficient. When bundling is allowed, each seller has an incentive to bundle his products, and an efficient “technology-renting” equilibrium always exists. Furthermore, in the case of digital goods or when sales below marginal cost are banned, all equilibria are efficient. Comparing the mixed-strategy equilibrium with the technology-renting equilibrium reveals that bundling often increases the buyer's surplus. Finally, we derive clear-cut policy implications.

Document Type: Research Article

DOI: http://dx.doi.org/10.1257/aer.102.5.1957

Publication date: August 1, 2012

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aea/aer/2012/00000102/00000005/art00007
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