The BUNDLE.ltx Model

Product Bundling

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Bundle pricing is a form of quantity discounting. Examples of products that might be bundled are (a) airfare, hotel, rental car, tours, and meals or (b) computer, monitor, printer, and hard disk. Stigler (1963) showed how a movie distributor might improve profits by leasing bundles of movies rather than leasing individual movies. Bundling assumes that it is easy for the seller to assemble the bundle and difficult for a buyer to unbundle. Otherwise a reseller could buy the bundle at a discount and then sell the individual components at a markup.

In this example, Microland Software has recently acquired an excellent word processing product to complement its own recently developed spreadsheet product. Microland is contemplating offering the combination of the two products for a discount. After demonstrating the products at a number of diverse professional meetings, Microland has developed a relatively good characterization of the market to make it's decision on. This model uses it's characterization of the market to help Microland decide.


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