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

ANSWER: Generally, mixed bundling means firms will offer packages sometimes with the individual product. Packages are provided with the good discount rate when compared to its components. For instance tour packages, Usually mixed bundling takes place where firms compete with the each other. Also mixed bundling can be considered as a price discrimination device by providing purchase choices to the consumers. It gives us more profitable to firms in a compettive market.

And in order to make profits for the business, firms also adopt a strategy which is called as mixed bundling. It also allows consumers either to buy goods together as a bundle or separately. For instance, the price of a mobile is $20 and a consumer is tring to give that commodity for $30. The price of a headphone is $8. He is willing to give it for $10 the bundle price for these two items is $24. In this case consumer will choose bundle. Because, he will have consumer surplus. It is also considered as a form of the price discrimination. In the competitive market firms are used this strategy against his rivials.

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