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Luis Cabral and Gabriel Natividad's "Bundling Sequentially Released Durable Goods," published in the Journal of Industrial Economics

July 12, 2022

Suppose two durables are sequentially released and suppose that consumer valuations of these goods are positively correlated. By the time the second good is released, high-valuation buyers are out of the market for the first good. Therefore, a bundle can be targeted at the low-valuation consumers without violating the high-valuation consumers' incentive compatibility constraint. We test the model's predictions on data from retail DVD sales in the 2000's. Consistent with theory, our estimates suggest that mixed bundling increases revenues, especially when the bundle components are similar (which in turn suggests positive correlation of valuations).

Luis Cabral is the Paganelli-Bull Professor of Economics and Int. Business & Chair of the Department of Economics.
Read the full paper here.