Large-Scale Bundle-Size Pricing: A Theoretical Analysis

Can you sell multiple items by providing only prices for different sizes of bundles rather than the different possible combinations of them? In this paper, we provide a framework for understanding “bundle-size pricing” (or simply, BSP) where only a menu of bundle sizes and their corresponding prices are offered. Although BSP is commonly used across several industries, little is known about the optimal BSP policy in terms of sizes and prices, along with the theoretical properties of its profit. In this paper, we provide a simple and tractable theoretical framework to analyze the large-scale BSP problem where a multiproduct firm is selling a large number of products. We characterize the circumstances under which such policies perform well by studying the effect of various factors such as marginal cost or customers’ budget on the performance of BSP and identify possible causes of its inefficiency.

How Does Firm Scope Depend on Customer Switching Costs? Evidence from Mobile Telecommunications Markets

This paper examines the relative advantages of single-product and multiproduct firms following changes in customer switching costs. Whereas a single-product firm can closely tailor offerings to customers’ needs, a multiproduct firm can create value for customers in the form of flexibility, allowing them to change between product varieties as preferences evolve without needing to switch providers. We argue that this value-creation mechanism is more effective when customers face high switching costs and explore this prediction in the mobile telecommunications sector, using an exogenous policy change (mobile number portability) that suddenly decreases customer switching costs. Our results reveal that when customer switching costs fall, multiproduct firms see lower growth than single-product firms, and entry with a multiproduct offering becomes less frequent than before. The study highlights how customer switching costs can enable or inhibit choices of firm scope. This paper was accepted by Joshua Gans, business strategy.

A Model of Multiproduct Firm Growth

This paper studies optimal growth strategies of a multiproduct firm that invests in the qualities of different products, which have persistent effects on future payoffs and are modeled as a state variable of a stochastic game. We derive a unique Markov perfect equilibrium under a monotonicity condition. At the early stage, the firm focuses on the product with higher quality, and may switch its specialization. If the quality of the specialized good is high enough, the firm diversifies to capture demands for all products. However, the firm may lose its focus on either product and get no demand, due to a moral hazard problem.

Can biogas, generated from cattle waste reduce negative externalities? A case of study in argentina

Lately, Argentina has been promoting renewable energies by implementing several programs. Agroindustrialactivities generate organic waste, which could be treated to mitigate the negative externalities it causes. In this work the results proposed regarding the volume of biogas generation from waste were estimated for a firm in the Corfo region in the province of Buenos Aires. We present an alternative to reduce negative externalities and improve environment through the transformation of biomass into caloric energy, considering the case of a multiproduct firm, in which waste can be the input to produce a new output (biogas and biofertilizer). We determined that, from the effluent generated by 500 heads of cattle, it is possible to obtain 10.125 m3 of biogas/ month, which could be sold or used by the agrarian firm for self-consumption, diminishing its costs.

Creating Platforms by Hosting Rivals

We explore conditions under which a multiproduct firm can profitably turn itself into a platform by “hosting rivals,” that is, by inviting rivals to sell products or services on top of its core product. Hosting eliminates the additional shopping costs to consumers of buying a specialist rival’s competing version of the multiproduct firm’s noncore product. On the one hand, this makes it easier for the rival to compete on the noncore product. On the other hand, hosting turns the rival from a pure competitor into a complementor: the value added by its product now helps raise consumer demand for the multiproduct firm’s core product. As a result, hosting can be both unilaterally profitable for the multiproduct firm and jointly profitable for both firms. This paper was accepted by Joshua Gans, business strategy.