Question

5) How does mixed bundling differ from pure bundling? Under what conditions is mixed bundling preferable to pure bundling? Why will firms practice mixed bundling instead of pure bundling?

6) Considering each of the following industries, which model, Cournot or Bertrand, will provide a better approximation to the market: the oil refining industry, dry cleaning services, insurance?

Answer 1

Ans 5) Mixed bundling differ from pure bundling as Pure bundling means to sell the goods in the package form only like in restuarants 2 dishes are combined they cannot be purchased individually like entree dish and side dish whereas Mixed bundling means to sell goods to the consumers either in form of bundles or as individuals like McDonalds sell burger, fries and soda individually also and have value meal option also where they are offered in bundle.

Mixed bundling is preferable to pure bundling as mixed bundling gives more profits with respect to pure bundling in the situation when individual or single product's demand doesn't have powerful negative correlation or marginal cost are at high level or both the conditions.

Firms will practice mixed bundling instead of pure bundling because

1) Competition - If the competitors are giving discounts on bundles , then the individual firm will also have to do the same.

2) To catch the diminishing value bundle discount is good - If value of goods is diminishing , then it's better to give bundle discount . It satisfy the consumer as well as make profit for business.

3) Provide assistance to customer by giving information - When the customer has large number of goods to select from , then bundles can be helpful to provide details to customer in this confusing situation.It provide information about different benefits the bundle is offering which will help customer to take decision.

4) Price discrimination to the buyers who are willing to buy individual product and those who are willing to buy in bundle - The price may vary from customer to customer. Eg. The McDonalds observe that the customer who take soda only for drinking due to thirst are ready to pay more prices then the people who take other eatables also. So , price discrimination in this case, by giving bundle offers, will help to increase the sale.