Question

Why do firms bundle products?

Answer 1

Answer.) Bundling, or a tying arrangement is “an agreement to sell one product onlyif the buyer agrees to buy another, different product.” Bundling, a strategy, is a marketing approach in which multiple products or components are packaged together into one bundled product to create a new price point. In essence, bundling will enable the seller to price discriminate. For example, if 50% consumers are willing to pay $20 for a popcorn bucket and $10 for a soft drink can, but the other 50% are willing to pay only $10 for a popcorn bucket and $20 for a soft drink can. Sold separately at $20 each, half the consumers will buy the popcorn bucket but not the Soft Drink Can, and the other buy the Soft Drink Can but not the Popcorn Bucket. If the company bundles the Popcorn Bucket and Soft Drink Can together for $30, everyone buys the bundle and the seller makes an extra $10 per sale. Since bundling increases demand and the sale volume, firms are more likely to bundle goods if demand is elastic.