Question

Firms that have market power can apply the mixed bundling strategy to increase their profits. Some researchers claim that even if a firm does not have any market power, i.e., even in a competitive market, firms can use mixed bundling (for example, those small restaurants/fast food restaurants located in the shopping malls). Explain why and how firms in competitive markets may apply mixed bundling. Provide a numerical example to prove your case.

Answer 1

Mixed bundling means sometimes firms offer packages with individual product.. Packages are provided with discount rate compared to its components... For example tour packages... Usually mixed bundling occurs where firms compete with each other... Mixed bundling can be considered as a price discrimination device by providing purchase options to consumers... It us more profitable to firms in a competitive market.

In order to make profit for business, firms adopt a strategy called mixed bundling. It allows customers either to purchase goods together as a bundle or separately.. .For example, the price of a mobile phone(x) is $20 and the a consumer is willing to give that phone is 30. The price of headphone(Y) is $8 .. He is willing to give it $10 ..the bundle price for these two items is $24.. In this situation consumer will choose bundle.. Because he will have consumer surplus... It is also considered as a form of price discrimination... In the competitive market, firms used this strategy against his rivals...