Competitive bundling and counterbundling with generalist and specialist firms

Bikram Ghosh, Subramanian Balachander

Research output: Contribution to journalArticlepeer-review

45 Scopus citations

Abstract

Bundling, which is the practice of selling two or more products or services in a package, is a pervasive marketing practice and is often used as a strategic competitive tool. However, there has not been enough consideration of competitive bundling situations in which exit of a competitor is not a concern. In this paper, we address this issue by identifying conditions under which strategic competitors may or may not resort to bundling when competitor exit considerations are absent. We study competition between a multiproduct generalist firm and two single-product specialist firms in two product categories, one of which has undifferentiated products and the other has differentiated products. In our model, the specialist firms can form an alliance to bundle their products in competing with the generalist firm. In contrast to the previous literature, we find that concurrent bundling by competitors, if it occurs in equilibrium, is profitable. We also find that when one competitor bundles and the other does not, the bundling firm gains a greater share of customers and makes a higher profit. However, when conditions favor counterbundling by a competitor, such counterbundling helps the competitor retain its customers. Finally, we note that under other market conditions, concurrent bundling by competitors escalates price competition to the extent that retaining customers through bundling is not profitable. In such a case, we show that strategic competitors are better off having asymmetric product lines with one competitor bundling and the other selling unbundled.

Original languageEnglish (US)
Pages (from-to)159-168
Number of pages10
JournalManagement Science
Volume53
Issue number1
DOIs
StatePublished - Jan 2007
Externally publishedYes

Keywords

  • Bundling
  • Competition
  • Game theory
  • Pricing

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

Fingerprint

Dive into the research topics of 'Competitive bundling and counterbundling with generalist and specialist firms'. Together they form a unique fingerprint.

Cite this