Improving Profits by Bundling Vertically Differentiated Products

• 成果类型: Article
• 署名作者: Honhon, Dorothee; Pan, Xiajun Amy
• 署名单位: University of Texas System; University of Texas Dallas; State University System of Florida; University of Florida
• 刊物名称: PRODUCTION AND OPERATIONS MANAGEMENT
• ISSN/ISSBN: 1059-1478
• DOI: 10.1111/poms.12686
• 发表日期: 2017
• 页码: 1481-1497
• 关键词: Vertical differentiation; bundling; pricing; ASSORTMENT

摘要

We consider a firm managing a category of vertically differentiated goods, that is, products which differ with respect to an attribute for which all consumers prefer more to less. The goods can be sold individually, in which case they are referred to as components, or in bundles. The firm chooses the assortment of components and bundles and their selling prices to maximize profit. We show that each bundling strategy (pure components, pure bundling or mixed bundling) can be optimal and obtain closed-form expressions for the optimal selling prices. We provide insights on thestructure of the optimal assortment and prices. In particular, we show that, when consumers benefit from consuming the components jointly, the products in the optimal assortment form nested sets. When consumers do not benefit from the joint consumption of components, the bundles should be offered at a positive discount. We find that bundling vertically differentiated products can significantly improve profits, even if consumers do not benefit from consuming the components jointly. The value of bundling comes from increased sales: a firm, which understands that its customers may buy multiple types of components, offers bundles of components, incentivizing customers to buy more.