Bundling in a Symmetric Bertrand Duopoly

32 Pages Posted: 22 Nov 2019 Last revised: 22 Sep 2021

See all articles by Araz Khodabakhshian

Araz Khodabakhshian

Bain & Company

Guillaume Roels

INSEAD - Technology and Operations Management

Uday S. Karmarkar

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: September 22, 2021

Abstract

Competitive bundling may lead to such different outcomes as preempting entry, intensifying price competition, or softening it. These different outcomes have been shown to emerge under different industry structures when firms have restricted ranges of action. But how general are these results? In this paper, we investigate whether they still hold under the most generic model of competition, namely: Two symmetric firms competing on price with regard to two homogeneous zero-cost components, without restrictions on their product offering. We show that all three outcomes emerge in equilibrium, respectively as a full mixed-bundling monopoly, a full mixed-bundling competitive duopoly, and a pure or partial-mixed bundling differentiated duopoly. Furthermore, we establish that there are first-mover advantages to bundling and that, unlike in a monopoly, firms may be better off limiting their product offering. Our stylized approach highlights the importance of market operating rules for equilibrium selection: Bundling is not anticompetitive per se, unless firms attempt to coordinate or preempt entry by fully covering the market.


Keywords: Industrial Organization, Bundling, Bertrand Competition, Non-cooperative Game Theory

Suggested Citation

Khodabakhshian, Araz and Roels, Guillaume and Karmarkar, Uday S., Bundling in a Symmetric Bertrand Duopoly (September 22, 2021). INSEAD Working Paper No. 2021/51/TOM, Available at SSRN: https://ssrn.com/abstract=3491164 or http://dx.doi.org/10.2139/ssrn.3491164

Araz Khodabakhshian

Bain & Company ( email )

Two Copley Place
Boston, MA 02118
United States

Guillaume Roels (Contact Author)

INSEAD - Technology and Operations Management ( email )

Boulevard de Constance
77 305 Fontainebleau Cedex
France

Uday S. Karmarkar

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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