Buyer Behavior and the Welfare Effects of Bundling by a Multiproduct Monopolists: A Laboratory Test

Abstract

[Introduction] This paper reports the findings of a laboratory test of a number of predictions derived from modern auction theory. The primary focus is on the efficiency and distributional consequences of the common practice of selling a variety of different items in "lots" or "bundles." Recent developments in auction theory allow one to make rather sharp predictions about how allocations are affected by the way the seller chooses to package different items together to form lots. By replicating the environment specified by the model very accurately in controlled laboratory auctions, these predictions are tested. The data are found to provide strong support for many of the theoretical propositions.

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