🤖 AI Summary
This study investigates the impact of mixed bundling and price-matching guarantees (PMGs) on competitive equilibrium in a duopoly market for complementary goods. We develop a non-cooperative game-theoretic model between two retailers, where one offers mixed bundling while the other provides only pure bundling, and characterize heterogeneous consumer purchasing behavior through equilibrium analysis and comparative statics. Our findings show that, whenever equilibrium exists, mixed bundling strictly dominates the unbundled benchmark. The adoption of a PMG hinges on a trade-off between the loss in loyal-customer profits and the gain from strategic demand acquisition, a balance jointly moderated by demand elasticity and the degree of product complementarity. This work thus uncovers the competitive advantage of mixed bundling and elucidates its strategic interaction with PMG policies.
📝 Abstract
We study mixed bundling and competitive price-matching guarantees (PMGs) in a duopoly selling complementary products to heterogeneous customers. One retailer offers mixed bundling while the rival sells only a bundle. We characterize unique pure-strategy Nash equilibria across subgames and compare them to a no-bundling benchmark. Mixed bundling strictly dominates whenever an equilibrium exists. Conditional on bundling, PMG adoption trades off strategic demand capture against margin losses on loyal customers and varies systematically with relative demand responsiveness to prices and complementarities.