American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Bundle-Size Pricing as an Approximation to Mixed Bundling
American Economic Review
vol. 101,
no. 1, February 2011
(pp. 263–303)
Abstract
Multiproduct firms can set separate prices for all possible bundled combinations of its products "mixed bundling"). However, this is impractical for firms with more than a few products, because the number of prices increases exponentially with the number of products. We find that simple pricing strategies are often nearly optimal. Specifically, we show that bundle-size pricing—setting prices that depend only on the size of bundle purchased—tends to be more profitable than offering the individual products priced separately and tends to closely approximate the profits from mixed bundling. (JEL D24, D42, L11, L13, L25)Citation
Chu, Chenghuan Sean, Phillip Leslie, and Alan Sorensen. 2011. "Bundle-Size Pricing as an Approximation to Mixed Bundling." American Economic Review, 101 (1): 263–303. DOI: 10.1257/aer.101.1.263Additional Materials
JEL Classification
- D24 Production; Cost; Capital, Total Factor, and Multifactor Productivity; Capacity
- D42 Market Structure and Pricing: Monopoly
- L11 Production, Pricing, and Market Structure; Size Distribution of Firms
- L13 Oligopoly and Other Imperfect Markets
- L25 Firm Performance: Size, Diversification, and Scope