Paper #1152

Title:

Bundling and competition for slots: On the portfolio effects of bundling

Authors:

Doh-Shin Jeon and Domenico Menicucci

Date:

February 2009 (Revised: July 2009)

Abstract:

We consider competition among sellers when each of them sells a portfolio of distinct products to a buyer having limited slots. We study how bundling affects competition for slots. Under independent pricing, equilibrium often does not exist and hence the outcome is often inefficient. When bundling is allowed, each seller has an incentive to bundle his products and an efficient equilibrium always exists. Furthermore, in the case of digital goods, all equilibria are efficient if slotting contracts are prohibited. We also identify portfolio effects of bundling and analyze the consequences on horizontal mergers. Finally, we derive clear-cut policy implications.

Keywords:

Bundling, Portfolios, Slots (or Shelf Space), Pure Bundling, Slotting Contracts, Exclusive Dealing, Foreclosure

JEL codes:

D4, K21, L13, L41, L82

Area of Research:

Microeconomics

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