A Study on Pricing under a Coopetitive and Duopolistic Market of Vertically Differentiated Products (original) (raw)

Bundling by Competitors and the Sharing of Profits

SSRN Electronic Journal, 2005

We discuss the effects of bundling two goods offered by two symmetric firms. This situation requires the use of some sharing rule for the profits from the sales of the bundle. We show that the choice of this rule may have substantial effects on prices and profits-even if the possible rules eventually yield equal shares. In particular, the use of the a priori equal sharing rule yields lower prices and profits, than a price weighted sharing rule. When competitors bundle, they can implicitly cooperate via the setting of the profit sharing rule and increase their profits at the expense of consumers. This issue calls for some further attention by regulators.

Price bundling in competitive markets

Journal of Revenue and Pricing Management, 2012

This research investigates mixed bundling pricing in oligopoly markets with both comparison and uninformed shoppers. We examine how additivity and correlation of multi-product customer values influence single item and bundle prices. We characterize the mixed strategy equilibrium and for specific parameters we compute undominated pricing strategies. We also conduct two sets of controlled laboratory experiments with human decision makers, focusing on additivity and on correlation. Across all conditions sellers display a systematic bias by overemphasizing comparison shoppers. The markets are highly efficient with low pricing for both buyer-types. Thus, competitive pressure seems to reduce the exploitative properties of monopolist bundling.

THE ROLE OF COST IN DETERMINING WHEN FIRMS OFFER BUNDLES

Journal of Industrial Economics, 2008

We model competitive bundling and tying, allowing for marginal cost savings from bundling, fixed costs of product offerings, and variation in customer preferences. Pure bundling can arise either because few people demand only one component or because, with high fixed costs, a single product efficiently satisfies customers with diverse tastes. We conclude by analyzing empirically the bundling of pain relievers with decongestants. The discount for the bundled product is large. We argue that our model provides a simpler, more compelling explanation for the size of the discount than the demand-centered approach to bundling by a monopolist.

Bundle pricing strategies for two complementary products with different channel powers

Annals of Operations Research, 2017

In this paper, we consider a duopoly market where two manufacturers separately produce and sell two complementary products through a common retailer as a leader-follower movement. The competition has been studied in two-echelon supply chain system and all produced products are sold by the retailer with individual product prices or with pure products' bundling price in the non-cooperative market. The demand of each product linearly depends on prices of these two products as per their nature. Here, model for two different cases (without and with pure products' bundling) are developed mathematically to maximize the profit of each participant of the supply chain and then corresponding optimal pricing strategies are worked out for the manufacturers and retailer. It is shown that supply chain profit for the pure bundling is better than the profit when products are sold at individual prices. Finally, the model is illustrated with numerical data to study the effects of models' parameters in the pricing strategies and some marketing decisions are explored.

Bundling strategy and product differentiation

The existing literature shows that a decrease in the degree of substitutability increases a monopoly's incentive to bundle. This paper in addition takes into account competition in the second product market and then reexamines how intra-brand and inter-brand product differentiations affect the incentive to bundle. In order to formally examine the above conjectures, this research builds up a two-firm, two-product model in which product 1 (monopoly product) is produced only by the bundling firm and product 2 (competing product) is produced by both firms. The analysis shows that under both Bertrand and Cournot competitions the incentive to bundle does not necessarily increase with the degree of intra-brand differentiation, while it strictly decreases with the degree of inter-brand differentiation. Moreover, under Bertrand competition bundling always decreases consumer surplus, but may increase the competitor's profit and social surplus. Under Cournot competition bundling always reduces the opponent's profit and social welfare, but may increase consumer surplus.

The profit benefits of bundle pricing of complementary products

Journal of Retailing and Consumer Services, 2011

In an attempt to provide a framework that can help firms find optimum bundling product categories and pricing strategies that maximize their profits, this study develops a profit-maximization model. The results indicate that optimum bundles and price strategies exist; specifically, if a firm uses a bundling strategy to sell its products, it should combine highly complementary products and charge a relatively lower price. The value of a bundling strategy always increases with the size of market and price sensitivity. Managers can use the provided model framework and related advice and examples to plan their bundling strategies.

Competitive Mixed Bundling of Vertically Differentiated Products

The B.E. Journal of Economic Analysis & Policy, 2012

We examine mixed bundling in a competitive environment that incorporates vertical product differentiation. We show that, compared to the equilibrium without bundling, (i) prices, profits and social welfare are lower, whereas (ii) consumer surplus is higher in the equilibrium with mixed bundling. In addition, the population of consumers who purchase both products from the same firm is larger in the equilibrium with mixed bundling. These results are largely in line with those obtained in the previous literature on competitive mixed bundling with horizontal differentiation. Further, we conduct a comparative static analysis with respect to changes in quality differentiation parameters. When the quality gap between brands narrows under no bundling and symmetric mixed bundling, prices and profits decrease. When quality differentiation is asymmetric across products, however, complicated effects occur on prices and profits due to strategic interdependence that mixed bundling creates.

Coopetition in a mixed oligopoly market

2007

In this study, we aim to investigate the impact of privatization on the degree of cooperation and competition in a mixed oligopoly market. We consider a duopoly market that comprises one semipublic firm and one private firm. Each firm is assumed to determine the level of two types of effort: the cooperative effort made to enlarge the total market size and the competitive effort made to increase market share. In a contest framework, our results show that the competitive effort level of the semipublic firm is smaller than that of the private firm. The more the semipublic firm is concerned for social welfare, the less it competes. On the basis of average costs, we then analyze the case in which only the semipublic firm undertakes cooperative effort. In this case, the private firm behaves as a free rider. Furthermore, we find that the semipublic firm expends more cooperative effort than does the private firm.