Mixed Bundling in Duopoly

We present a model where producers of complementary goods have the option to practice mixed bundling. In the first stage of a two-stage game, firms choose between a mixed bundling and a non-bundling strategy. In the second stage, firms choose prices. We show that mixed bundling is a dominant strategy for both firms. However, when the composite goods are not very close substitutes, at the bundling-bundling equilibrium both firms are worse off than when they both commit not to practice mixed bundling. * I am grateful to Bill Greene, Shabtai Donnenfeld, Barbara Katz, Larry White and Bob Wilson for helpful discussions and useful suggestions. ** Stern School of Business, New York University, New York, NY 10012-1126. (212) 998-0864, FAX (212) 995-4218, e-mail: [email protected]. Mixed Bundling in Duopoly