Gaussian Demand and Commodity Bundling

Article Abstract:

In different actual examples of bundling, bundling components seem linked as to demands. Assumptions of demand independence may be easier analytically, but are not necessarily logical. Incremental modeling costs for the case of interrelated demand seem rooted in the sacrifice of basic Adams-Yellen diagrams. In interrelated demand situations, validity can be found in linking bundling and two-part pricing, profit treatment as a function of two-part prices, bundling profitability and Q/N behavior, and bundling and couponing. Hypotheses about the distribution of component reservation prices are the single case where independence in demand assumption is functional. The best case for bundling as a price discrimination device is probably where bundle parts are demand substitutes, such as variety packs. Bundling of complementary components is difficult to assess using only price discrimination techniques.

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A graphical analysis of bundling

Article Abstract:

The use of bundling is examined in relation to its welfare effects and profitabiliity. This is done by examining the demand for a bundle and comparing it to the aggregate demand for the bundle's components. The results show that bundling is usually profitable in instances when it does not lower costs and in cases when reservation values are inversely linked to the level of costs. The results also indicate that in instances when bundling actually lowers costs, the incentive to bundle is increased when reservation values are positively correlated with the level of costs. Hence, bundling is shown to raise consumer surplus in instances when it lowers prices. However, in other cases, consumer surplus is lowered, such as when bundling leads to a price equal to the aggregate total of the prices of a bundle's components.

Finance, Securities

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Why do hot dogs come in packs of 10 and and buns in 8's or 12's? A demand-side investigation

Article Abstract:

The price consumers are willing to pay for a product depends on a variety of factors, package size and cost being only two. Other determining factors are: consumption rates, storage costs, and transaction costs. How much of a product a consumer needs at one time, plus the availability of storage and the difficulty of completing the purchase, directly affect the size and cost of the product the consumer will seek.

Research, Analysis, Consumers, Packaging, Supply and demand

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