NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Nearly Optimal Pricing for Multiproduct Firms

Chenghuan Sean Chu, Phillip Leslie, Alan Sorensen

NBER Working Paper No. 13916
Issued in April 2008
NBER Program(s):   IO

In principle, a multiproduct firm can set separate prices for all possible bundled combinations of its products (i.e., "mixed bundling"). However, this is impractical for firms with more than a few products, because the number of prices increases exponentially with the number of products. In this study we show that simple pricing strategies are often nearly optimal -- i.e., with surprisingly few prices a firm can obtain 99% of the profit that would be earned by mixed bundling. Specifically, we show that bundle-size pricing -- setting prices that depend only on the size of bundle purchased -- tends to be more profitable than offering the individual products priced separately, and tends to closely approximate the profits from mixed bundling. These findings are based on an array of numerical experiments covering a broad range of demand and cost scenarios, as well as an empirical analysis of the pricing problem for an 8-product firm (a theater company).

download in pdf format
   (376 K)

email paper

This paper is available as PDF (376 K) or via email.

An online appendix is available for this publication.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13916

Users who downloaded this paper also downloaded these:
Carlton, Greenlee, and Waldman w14199 Assessing the Anticompetitive Effects of Multiproduct Pricing
Bernard, Redding, and Schott w12293 Multi-Product Firms and Product Switching
Fuss and Waverman Regulation and the Multiproduct Firm: The Case of Telecommunications in Canada
Nevo w16511 Empirical Models of Consumer Behavior
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us