Packaging, Selection, and Correlated Firm Behavior
7 Pages Posted: 8 Dec 2011
Date Written: March 25, 2008
Abstract
Many firms do not charge separately for services such as delivery, parking, and acceptance of payment cards (‘packaging’). I show that for a range of service costs, multiple equilibria arise and each firm chooses to offer a service if and only if its competitors offer the service as well. Intuitively, no firm is willing to be a sole offerer of the service even when offering the service is efficient: the offering firm serves disproportionally many service users, which constitutes ‘bad’ selection when service costs cannot be recovered separately.
Keywords: Market Structure, Pricing, Strategic Complements, Bundling, Packaging
JEL Classification: D4, L11
Suggested Citation: Suggested Citation
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