Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 253: Bundled Sales as Self-Selection Devise

Klaus Wallner
Additional contact information
Klaus Wallner: SITE - Stockholm Institute of Transition Economics and East European Economies, Postal: Stockholm School of Economics, P.O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: This paper develops an adverse selection model of mixed bundling. By packaging its product with a competitively produced good unrelated in demand, a monopolist can induce self-selection of different types of consumers into buyers of the bundle and of the separate components. Private and social optimality conditions of bundling are derived. The effect on prices and welfare depends on the demand elasticities for the bundled and unbundled good. By overcoming information asymmetries, bundling may raise welfare if it leads to a sufficiently strong expansion of the market. It is possible that prices to all buyers rise; in this case welfare definitely falls if the bundle is introduced.

Keywords: Commodity bundling; price discrimination.

JEL-codes: D42; L12; L42

25 pages, August 17, 1998

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