301lec22b - Some Examples of Bundling and Tying Simplest...

Some Examples of Bundling
and Tying.
• Simplest example of bundling: One
consumer with demand
q = 4 - p . Monopoly firm with zero cost.
If the firm has to use a single per unit
price, then it would maximize (4 - p ) p by
setting price p
m
= 2.
The other thing that it could do is just
price a bundle of 4 units at 8. The con-
sumer will purchase the bundle, but is the
firm was to set price at 2, the consumer
will only purchase 2.
• Two-part tariff is another way to achieve
this: Let the consumer pay 8 as a fixed fee,
for the right to purchase at 0.
1

Different forms of tying a profitable de-
pending on the valuations. Consider the
following table of valuations of the three
customers:
Good 1 Good 2
Customer 1 2 7
Customer 2 2 10
Customer 3 12 4
Optimal strategy: Charge 7 for the sec-
ond good and 16 for the bundle of two
goods. Customers 1 and 2 will buy good 1
and customer 3 will buy the bundle for the
total profit of 30
2

Now suppose that customer 1 has a
higher valuation:
Good 1 Good 2
Customer 1 5 7
Customer 2 2 10