Endogenous Product Boundary

Takanori Adachi, Takeshi Ebina, Makoto Hanazono

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

This study analyzes the determinants of product boundary choice as discriminatory pricing. Specifically, we consider a model where a monopolist sells a base product with an add-on valuable only if it is consumed along with the base product. An important feature of this model is that this additional value is contingent on the valuation of the base product. We show that separation, in which case only the base product is sold, yields a higher profit than integration, where only a bundled package is sold, if and only if the range of the add-on value exceeds a threshold value and that separation is more likely to become optimal as the degree of positive contingency increases. As for welfare, consumer surplus in case of separation is always lower than that when the seller is constrained to sell the bundled package.

Original languageEnglish
Pages (from-to)13-40
Number of pages28
JournalManchester School
Volume85
Issue number1
DOIs
Publication statusPublished - 1 Jan 2017

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