Bundling by competitors and the sharing of profits

Victor Ginsburgh, Israel Zang

Research output: Contribution to journalArticlepeer-review

Abstract

We discuss the effects of bundling two goods offered by two symmetric firms. This situation requires the use of some sharing rule for the profits from the sales of the bundle. We show that the choice of this rule may have substantial effects on prices and profits - even if the possible rules eventually yield equal shares. In particular, the use of the a priori equal sharing rule yields lower prices and profits, than a price weighted sharing rule. When competitors bundle, they can implicitly cooperate via the setting of the profit sharing rule and increase their profits at the expense of consumers. This issue calls for some further attention by regulators.

Original languageEnglish
JournalEconomics Bulletin
Volume12
Issue number16
StatePublished - 22 Aug 2007
Externally publishedYes

Fingerprint

Dive into the research topics of 'Bundling by competitors and the sharing of profits'. Together they form a unique fingerprint.

Cite this