A General Bundling Theory; an Application to Complementary Demand and Separate Sellers

The goal of this thesis is to investigate the effect of unilateral bundle price change on profit, when considering a mixed bundling strategy, complementary goods and separate sellers. Specifically, the research question ‘How does the profit depend on unilateral bundle price change?’ is answered by establishing a theoretical proposition on profitability, deriving results for one specific case and analyzing the effect of varying levels of complementarity. Under some reasonable assumptions, we obtain the monotonicity result that introducing a small unilateral bundle premium can positively affect the firm’s profit. When adding the assumption of symmetric prices and bundle premium values and considering a specific case example, we find that offering a higher bundle price does not necessarily give a higher industry profit. Lastly, we find that the strength of synergy between the two complementary products positively affects the industry profit. For all possible degrees of complementarity, however, the highest industry profit is obtained under linear pricing.