Marketing Tactics: Bundling, Upgrading and Dealerships Chapter 14 Bundling and Tying Organization: Markets and strategies ② Wen cao
Slides Reference: Industrial Organization: Markets and Strategies © Wen Cao Marketing Tactics : Bundling, Upgrading and Dealerships Chapter 14. Bundling and Tying
Chapter 14-Objectives Chapter 14. Learning objectives Identify the difference between bundling(mixed and pure)and tying Understand how a monopolist can use bundling and tying as a price discrimination device Analyse the effects of bundling on competition in oligopolistic markets Understand how bundling, depending on the circumstances, leads to a softer or a tougher price competition e Wen Cao
© Wen Cao 2 Chapter 14- Objectives Chapter 14. Learning objectives • Identify the difference between bundling (mixed and pure) and tying. • Understand how a monopolist can use bundling and tying as a price discrimination device. • Analyse the effects of bundling on competition in oligopolistic markets. • Understand how bundling, depending on the circumstances, leads to a softer or a tougher price competition. Chapter 14. Learning objectives • Identify the difference between bundling (mixed and pure) and tying. • Understand how a monopolist can use bundling and tying as a price discrimination device. • Analyse the effects of bundling on competition in oligopolistic markets. • Understand how bundling, depending on the circumstances, leads to a softer or a tougher price competition
Chapter 14-Introduction Selling different products in a single package e Definitions ° Bundling→> fixed proportions lvs Block Pricing] Pure bundling: only the package is available Mixed bundling: combined products are also sold separately Example: software suite Tying proportions might vary in the mix of goods EXample: printer and cartridges ● Rationa|es Strong complementarities between goods Supply side: cost efficiencies Demand side: Entry-deterrent strategy >chapter 8 Price discrimination device - what we study here e Wen Cao
© Wen Cao 3 Selling different products in a single package • Definitions • Bundling fixed proportions [VS Block Pricing] • Pure bundling: only the package is available • Mixed bundling: combined products are also sold separately • Example: software suite • Tying proportions might vary in the mix of goods • Example: printer and cartridges • Rationales • Strong complementarities between goods • Supply side: cost efficiencies • Demand side: • Entry-deterrent strategy chapter 8 • Price discrimination device what we study here. Chapter 14 - Introduction
Chapter 14-Introduction Case. Bundling in the information economy ° Content e Subscriptions to cable TV, to magazines CDs(bundle of songs ) newspapers(of articles Software: office suite, integration of various functionalities into the same software platform e Theatres forced to buy good and bad movies from the same distributor Infrastructure ° Computer systems Audio equipment (mixed bundling) Photocopier(machine maintenance Early IBM computers(machine punch-cards> tying) e Wen Cao
© Wen Cao 4 Case. Bundling in the information economy • Content • Subscriptions to cable TV, to magazines • CDs (bundle of songs), newspapers (of articles) • Software: ‘office suite’, integration of various functionalities into the same software platform • Theatres forced to buy ‘good’ and ‘bad’ movies from the same distributor • Infrastructure • Computer systems • Audio equipment (mixed bundling) • Photocopier (machine + maintenance) • Early IBM computers (machine + punch-cards tying) Case. Bundling in the information economy • Content • Subscriptions to cable TV, to magazines • CDs (bundle of songs), newspapers (of articles) • Software: ‘office suite’, integration of various functionalities into the same software platform • Theatres forced to buy ‘good’ and ‘bad’ movies from the same distributor • Infrastructure • Computer systems • Audio equipment (mixed bundling) • Photocopier (machine + maintenance) • Early IBM computers (machine + punch-cards tying) Chapter 14 - Introduction
Chapter 14-Monopoly bundling Formal analysis of monopoly bundling ° Bundling≈ menu pricing e If bundle price sum of prices of components>non linear pricing with quantity discounts Twisted form of menu pricing: set unique price for several goods to v consumer heterogeneity Illustration 2 products(produced at zero cost), 2 consumers Valuations Product 1 Product 2 Negative Consumer 1 correlation Consumer 2 32 23 But result holds more generally Separate sales: p,=p2=2, T=8 ° Bundling:p=5,T=10 e Wen Cao
© Wen Cao 5 Formal analysis of monopoly bundling • Bundling menu pricing •If bundle price < sum of prices of components non linear pricing with quantity discounts • Twisted form of menu pricing: set unique price for several goods to consumer heterogeneity • Illustration • 2 products (produced at zero cost), 2 consumers • Valuations • Separate sales: p1 p2 , • Bundling: p , Chapter 14 - Monopoly bundling Product 1 Product 2 Consumer 1 3 2 Consumer 2 2 3 Negative correlation But result holds more generally