TY  - JOUR
AU  - Chu,Chenghuan Sean
AU  - Leslie,Phillip
AU  - Sorensen,Alan
TI  - Nearly Optimal Pricing for Multiproduct Firms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13916
PY  - 2008
Y2  - April 2008
UR  - http://www.nber.org/papers/w13916
L1  - http://www.nber.org/papers/w13916.pdf
N1  - Author contact info:
Chenghuan Sean Chu
Federal Reserve Board of Governors
20th Street and Constitution Avenue NW
Washington, DC 20551 
E-Mail: sean.chu@frb.gov

Phillip Leslie
Anderson School of Management
UCLA
Box 951481
Los Angeles, CA 90095
Tel: 650-387-5498
E-Mail: pleslie@anderson.ucla.edu

Alan T. Sorensen
Department of Economics
University of Wisconsin, Madison
6454 W.H. Sewell Social Science Bldg
1180 Observatory Drive
Madison, WI 53706
Tel: 608/263-3867
E-Mail: sorensen@ssc.wisc.edu
AB  - 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).
ER  -