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PAYING FOR LOYALTY: PRODUCT BUNDLING IN OLIGOPOLY *
Author(s) -
GANS JOSHUA S.,
KING STEPHEN P.
Publication year - 2006
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/j.1467-6451.2006.00275.x
Subject(s) - business , oligopoly , profit (economics) , negotiation , product (mathematics) , loyalty , advertising , marketing , commerce , industrial organization , microeconomics , economics , geometry , mathematics , cournot competition , political science , law
In recent times, pairs of retailers such as supermarket and retail gasoline chains have offered bundled discounts to customers who buy their respective product brands. These discounts are a fixed amount off the headline prices that allied brands continue to set independently. We show that a pair of firms can profit from offering a bundled discount to the detriment of other firms and consumers whose preferences are farther removed from the bundled brands. Indeed, when both pairs of firms negotiate bundling arrangements, there are no beneficiaries and consumers simply find themselves consuming a sub‐optimal brand mix.