Bundling with quality choice

Hui Ling Chung, Hung Yi Chen, Jin-Li Hu, Yan Shu Lin*

*Corresponding author for this work

Research output: Contribution to journalArticle

2 Scopus citations

Abstract

Antitrust authorities consider commodity bundling as an extension of monopoly power to other markets which harms consumers. This paper analyzes quality competition and its effect on consumer surplus for the case of commodity bundling by a multi-product firm in a vertically differentiated industry. When the firm bundles a high quality good, we show that bundling negatively affects the quality of a competing good, consumer surplus, and welfare. When the firm bundles a low quality good instead, bundling raises the quality of a competing good, enhances consumer surplus, and may increase the welfare.

Original languageEnglish
Pages (from-to)147-165
Number of pages19
JournalHitotsubashi Journal of Economics
Volume55
Issue number2
DOIs
StatePublished - 1 Dec 2014

Keywords

  • Bundling
  • Consumer surplus
  • Optimal quality
  • Vertical product differentiation

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    Chung, H. L., Chen, H. Y., Hu, J-L., & Lin, Y. S. (2014). Bundling with quality choice. Hitotsubashi Journal of Economics, 55(2), 147-165. https://doi.org/10.15057/26969