Output Commitment through Product Bundling: Experimental Evidence

Abstract

We analyze the impact of product bundling in experimental markets. A firm has monopoly power in one market but faces competition by a second firm in another market. We compare treatments where the monopolist can bundle its two products to treatments where it cannot, and we contrast simultaneous and sequential order of moves. Our data indicate support for the theory of product bundling, even though substantial payoff differences between players exist. With bundling and simultaneous moves, the monopolist offers the predicted number of units. When the monopolist is the Stackelberg leader, the predicted equilibrium is better attained with bundling although in theory bundling should not make a difference here. In sum: bundling works as a commitment device that enables the transfer of market power from one market to another.