Bundling

• selling multiple products as a package

• pure bundling: products only available as a bundle

• mixed bundling: products cheaper in bundle than individually

• heterogeneous consumers

• price discrimination not allowed

• different reservation price

  • negative correlation of demand curve

• example: phone contract

Individual Pricing

• set price at maximum value of lowest willingness to pay
  • anything below leaves out profits from same consumers
  • anything above limits the consumer range

Pure Bundling

• set bundle price to willingness to pay of both products
  • sell to more people → more products sold
• mostly better with largely imperfect negative correlation
  • i.e. total willingness to pay is widely different across consumers

Mixed Bundling

• requires close to perfect negative correlation of demand curves
• easiest is to price the bundle as the sum of both products willingness to pay
• set bundle value same as pure bundling
• set individual price to maximum outlier price
  • how wide the outlier range is depends on the case
• calculation wise a difficult problem
  • has only been solved in the last 10 years