Journal of Business & Economics Research – September, 2010
Volume 8, Number 9
Bundling Strategy For A Follower
Ming-Chung Chang, Kainan University, Taiwan
ABSTRACT
A follower in a market always uses a bundling strategy as a marketing strategy to increase profit and
to change its market status. In this paper, the relationship between the main goods and bundling
goods is substitutive, independent, or complementary. A Stackelberg game is applied to capture the
competitive relationship between a leader and a follower. A follower uses a bundling strategy as a
marketing strategy, but a leader does not. This study reveals that a follower will become a leader
when he (or she) sells two products that are low substitution goods. However, it induces a social
welfare to decrease when a follower bundles goods. This paper illustrates that a bundling action
can invert a follower’s market status. However, the inversion on a follower’s status does not
promote the social welfare.
Keywords:
Bundling Strategy, Stackelberg Game
INTRODUCTION
B
undling is when various goods are bundled in a package and sold at the same time. Bundling is a
marketing strategy for extracting consumer surplus and for increasing commercial profit. The
marketing strategy of bundling is seen in the financial industry, tourism industry and others. For
example, some financial institutions bundle a credit card with travel, insurance, or airport service. Tourism usually
bundles a travel program with plane tickets, travel insurance, or a hotel.
The earliest literature about bundling aimed at the economic effect of bundling two goods under the
monopoly market structure (Burstein, 1960; Adams and Yellen, 1976; Schmalensee, 1982; Schmalensee, 1984;
MacAfee et. al., 1989; Salinger, 1995; Bakos and Brynjofsson, 1999). They found that the monopoly firm achieves
profitability by bundling goods.
The literature above cannot be applied to competitive industries. Thus, some papers...