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Bundling in Oligopoly: Revenue Maximization with Single-Item Competitors by Babaioff, Moshe; Cai, Linda; Lucier, Brendan is a scholarly article available to read on EtoBox.

What is Bundling in Oligopoly: Revenue Maximization with Single-Item Competitors about?

We consider a principal seller with $m$ heterogeneous products to sell to an additive buyer over independent items. The principal can offer an arbitrary menu of product bundles, but faces competition from smaller and more agile single-item sellers. The single-item sellers choose their prices after the principal commits to a menu, potentially under-cutting the principal's offerings. We explore to what extent the principal can leverage the ability to bundle product together to extract revenue. Any choice of menu by the principal induces an oligopoly pricing game between the single-item sellers, which may have multiple equilibria. When there is only a single item this model reduces to Bertrand competition, for which the principal's revenue is $0$ at any equilibrium, so we assume that no single item's value is too dominant. We establish an upper bound on the principal's optimal revenue at every equilibrium: the expected welfare after truncating each item's value to its revenue-maximizing price. Under a technical condition on the value distributions -- that the monopolist's revenue is sufficiently sensitive to price -- we show that the principal seller can simply price the grand-bundle

Author

Babaioff, Moshe; Cai, Linda; Lucier, Brendan

Published

2024

Language

EN