Bundling and Competition for Slots: Sequential Pricing

Abstract

In this paper we study, as in Jeon-Menicucci (2009), competition between sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. This paper considers sequential pricing and complements our main paper (JeonMenicucci, 2009) that considers simultaneous pricing.First, Jeon-Menicucci (2009) find that under simultaneous individual pricing, equilibrium often does not exist and hence the outcome is often inefficient. By contrast, equilibrium always exists under sequential individual pricing and we characterize it in this paper. We find that each seller faces a trade-off between the number of slots he occupies and surplus extraction per product, and there is no particular reason that this leads to an efficient allocation of slots.Second, Jeon-Menicucci (2009) find that when bundling is allowed, there always exists an efficient equilibrium but inefficient equilibria can also exist due to pure bundling (for physical products) or slotting contracts. Under sequential pricing, we find that all equilibria are efficient regardless of whether firms can use slotting contracts, and both for digital goods and for physical goods. Therefore, sequential pricing presents an even stronger case for laissez-faire in the matter of bundling than simultaneous pricing.

Bundling and Competition for Slots: On the Portfolio Effects of Bundling

“…20 The buyer's payo¤ is given by the sum of the values of the purchased products minus the prices paid. Let u j denote the value that the buyer obtains from the j-th best product among all products in B; thus u 1 u 2 ::: u nk .…”

“…Then, if the buyer buys bundle B 1 from …rm 1, .., bundle B n from …rm n (some of these sets may be 20 If instead the buyer bears cost j i 0 to generate a value from product ij, then we can consider u j i j i as the buyer's gross value and the following analysis applies. 21 Our de…nition of menu of bundles generalizes the notion of mixed bundling used in the context of two goods.…”

“…However, if sellers use slotting contracts, ine¢ cient equilibria can arise even in the case of digital goods. For physical goods, we …nd 9 Because of the equilibrium non-existence under simultaneous pricing, we consider sequential pricing in a paper (Jeon-Menicucci, 2009) ancillary to this paper: then the equilibrium exists under independent pricing. We characterize it and …nd that each seller faces a trade-o¤ between quantity (i.e.…”

Effects of consumers' context‐dependent preferences on product bundling

“…33Note that sequential pricing is adopted by some studies in the CDPs literature (e.g., Chen & Turut, 2013) and the bundling literature (e.g., Jeon & Menicucci, 2009). If we use sequential pricing (e.g., firm 2 first chooses its price, and then firm 1 decides its prices), we can show that our main insights continue to hold qualitatively.…”