Chapter 26. The Strategy of Bundling
Barry Nalebuff
One of the distinguishing features of our modern economy is the competitive success achieved by product bundles. There are many reasons why bundling is an extremely effective strategy. Yet, the advantages of bundling are not well understood. This chapter provides some of the intuition for how bundling works—and when it doesn't.
The advantage of bundling was first recognized by Augustin Cournot.[1] Further advances were discovered by Stigler;[2] McAfee, McMillan, and Whinston;[3] and Nalebuff.[4],[5] Only recently has the theory moved from the academic journals to the public policy arena. Its debut was dramatic. In 2000, the $45 billion proposed merger between General Electric and Honeywell ...
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