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Bundling Decisions by a Multiproduct Monopolist with Incomplete Information

Palfrey, Thomas R. (1983) Bundling Decisions by a Multiproduct Monopolist with Incomplete Information. Econometrica, 51 (2). pp. 463-483. ISSN 1468-0262. doi:10.2307/1912001.

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This paper analyzes bundling decisions of a rnultiproduct monopolist facing uncertain demand. The monopolist sells his products using an auction mechanism and the market is analyzed as a game with incomplete information in which the buyers as well as the seller are strategic agents. With a small number of buyers, a profit maximizing seller will bundle all his output. This makes buyers uniformly worse off compared to the case where the same monopolist does not bundle, in the sense that any buyer is worse off regardless of his demand for the monopolist's outputs. With a larger number of buyers, the seller will have a tendency to unbundle his output and "high-demand" buyers are worse off than they would be if the monopolist bundled his output. "Low-demand" buyers. on the other hand. are always better off when the monopolist unbundles his output, regardless of the number of competing buyers. Despite the fact that "high demand" buyers are the typical purchasers of the monopolist's output, the net effect of increasing the number of buyers is greater market efficiency since bundling creates market inefficiencies both ex post and ex ante.

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Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:© 1983 The Econometric Society. Manuscript received October, 1980; revision received April, 1982. The author thanks Gary Chamberlain, Roger Noll, Michael Rothschild, Charles Wilson, participants of the University of Chicago Public Policy Workshop, and an anonymous referee for helpful comments and suggestions. Any errors in the paper are mine.
Issue or Number:2
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:65008
Deposited On:14 Mar 2016 22:51
Last Modified:10 Nov 2021 23:38

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