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American Economic Review Vol. 101 No. 1 2011

Bundle-Size Pricing as an Approximation to Mixed Bundling

Chenghuan Sean Chu1; Phillip Leslie2; Alan Sorensen2

1 Federal Reserve Board of Governors, 20th St. and Constitution Avenue NW, Washington, DC 20551. · 2 Stanford University, Graduate School of Business, 518 Memorial Way, Stanford, CA 94305.

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.

DOI
10.1257/aer.101.1.263
Volume
101
Issue
1
Pages
263-303
Language
en
Sources
openalex bibtex:phds-export.bib crossref

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