Name
Title | ||
|---|---|---|
Bundling with Customer Self-Selection: A Simple Approach to Bundling Low-Marginal-Cost Goods |
Abstract | ||
|---|---|---|
With declining costs of distributing digital products comes renewed interest in strategies for pricing goods with low marginal costs. In this paper, we evaluate customized bundling, a pricing strategy that gives consumers the right to choose up to a quantity M of goods drawn from a larger pool of N different goods for a fixed price. We show that the complex mixed-bundle problem can be reduced to the customized-bundle problem under some commonly used assumptions. We also show that, for a monopoly seller of low marginal cost goods, this strategy outperforms individual selling (M = 1) and pure bundling (M = N) when goods have a positive marginal cost or when customers have heterogeneous preferences over goods. Comparative statics results also show that the optimal bundle size for customized bundling decreases in both heterogeneity of consumer preferences over different goods and marginal costs of production. We further explore how the customized-bundle solution is affected by factors such as the nature of distribution functions in which valuations are drawn, the correlations of values across goods, and the complementarity or substitutability among products. Altogether, our results suggest that customized bundling has a number of advantages-both in theory and practice-over other bundling strategies in many relevant settings. |
Year | DOI | Venue |
|---|---|---|
2005 | 10.1287/mnsc.1050.0403 | Management Science |
Keywords | Field | DocType |
simple approach,customer self-selection,pricing goods,low marginal cost goods,quantity m,n different goods,customized-bundle problem,positive marginal cost,bundling low-marginal-cost goods,complex mixed-bundle problem,marginal cost,low marginal cost,different goods,self selection,pricing,information good,comparative statics,distribution function,information goods,internet | Intermediate good,Economics,Independent goods,Microeconomics,Fixed price,Marginal cost,Information good,Monopoly,Digital goods,Comparative statics | Journal |
Volume | Issue | ISSN |
51 | 10 | 0025-1909 |
Citations | PageRank | References |
40 | 3.84 | 2 |
Authors | ||
2 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Lorin M. Hitt | 1 | 2426 | 223.11 |
| Pei-yu Chen | 2 | 113 | 8.79 |