Prof. Ashutosh Prasad
Jindal School of Management
The University of Texas at Dallas
Product Bundling and Reserved Product Pricing
Mixed bundling, in which products are sold separately and as a bundle, is a form of second degree price discrimination. In a first such approach, we examine how mixed bundling and its variants stack up against reserved product pricing (RPP), a generalization of inter-temporal price discrimination to a multi-product setting. Used by Amazon.com, among others, RPP consists of the firm offering individual products and then enticing single product buyers with a discount on the second product. Unlike traditional cross-selling, RPP deals are more narrowly targeted. Our analytical model has a monopolist offering two products to a mix of myopic and strategic consumers. Our core findings: (a) neither RPP nor mixed bundling is always the best; (b) so long as the market consists of a “modest” fraction of myopic consumers, RPP is more profitable than mixed bundling and its special cases. We also present and discuss pricing results under RPP.
KEYWORDS: pricing; bundling; inter-temporal price discrimination; cross-selling