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Bundling and quality assurance
Author(s) -
Dana James D.,
Spier Kathryn E.
Publication year - 2018
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12222
Subject(s) - punishment (psychology) , imperfect , product (mathematics) , quality (philosophy) , business , economic surplus , microeconomics , value (mathematics) , marketing , industrial organization , commerce , economics , computer science , market economy , welfare , psychology , social psychology , linguistics , philosophy , geometry , mathematics , epistemology , machine learning
With imperfect private monitoring, a firm selling two experience goods can increase both producer and consumer surplus by bundling. Bundling constrains consumers to buy two products, making consumers better informed and ensuring that they use tougher punishment strategies. Both increased monitoring and increased punishment benefit other consumers, so bundling overcomes a free‐rider problem. The social value of bundling is even larger if consumers cannot attribute a negative signal to the specific product that generated it, or if one of the two goods is a durable and the other is a complementary nondurable. Our results are robust to mixed bundling.