How Bundling Benefits Sellers and Buyers

There is a widespread belief in technology circles that bundling of cable TV, newspaper, magazine and other information goods will go away now that those products can be distributed à la carte on the internet. The assumption seems to be that bundling is an artifact of another era when distribution was physical. But this reasoning misses the economi... See more

Bundled pricing is one reason why subscription models like Spotify should ultimately win out over à la carte models like iTunes. Subscription commerce can also be thought of as a form of bundling.

The benefits of bundled pricing are proportionate the buyers’ variance of preferences for the goods. Hence bundled pricing works best in highly “taste-based” goods like media, and wouldn’t have any benefit for fully commoditized goods (e.g. a bundle of stocks)

Bundled pricing can also hurt consumers if it is used by incumbents to exploit their broader catalog to “deter entry” by new competitors. This was a common complaint against Microsoft in the 90′s when they bundled applications like Internet Explorer with Windows.