TITLE:
Bundling and Consumers’ Reservation Value: Effects on Market Entry
AUTHORS:
Qing Hu
KEYWORDS:
Bundling, Entry Deterrence, Multiproduct firm, Product-Specific Preferences
JOURNAL NAME:
Technology and Investment,
Vol.6 No.1,
February
16,
2015
ABSTRACT: We consider a multiproduct incumbent which monopolizes one market but faces a potential entrant in another market. In a two dimensional Hotelling model, when consumers’ reservation value is relatively high, we show that the incumbent has an incentive to use bundling to deter entry only if a prior commitment is applicable. However, when consumers’ reservation value is low, the multiproduct firm even has no incentive to use bundling and bundling has no effect on entry deterrence.