Abstract: When procuring multiple products from competing
firms, a buyer may choose separate purchase, pure bundling, or mixed
bundling. We show that pure bundling will generate higher buyer surplus than
both separate purchase and mixed bundling, provided that trade for each good
is likely to be efficient. Pure bundling is superior because it intensifies
the competition between firms by reducing their cost asymmetry. Mixed
bundling is inferior because it allows firms to coordinate to the high
prices associated with separate purchase. (Pure) bundling is more likely to
be selected as a procurement strategy when: (i) the products' values are
higher relative to their possible costs, (ii) costs for different goods are
more negatively or less positively dependent, or (iii) the cost distribution
of each product is more dispersed. |