THESIS
2022
1 online resource (ix, 65 pages) : illustrations
Abstract
Many firms provide ancillary services to support their main service, and the presence
of multiple ancillary services creates abundant room for innovative selling strategies that
firms can exercise. We study two dimensions of bundling these services, namely, a vertical
dimension that bundles the main service with one ancillary service, and a horizontal
dimension that bundles multiple ancillary services altogether, and both. We demonstrate
how the optimal (un)bundling strategy varies with the market heterogeneity as well as
the correlations between valuations for the ancillary services. In particular, our result suggests
that the optimal pricing strategy depends on the market heterogeneity in different
dimensions: low heterogeneity in valuations for the main with one ancillary service fav...[
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Many firms provide ancillary services to support their main service, and the presence
of multiple ancillary services creates abundant room for innovative selling strategies that
firms can exercise. We study two dimensions of bundling these services, namely, a vertical
dimension that bundles the main service with one ancillary service, and a horizontal
dimension that bundles multiple ancillary services altogether, and both. We demonstrate
how the optimal (un)bundling strategy varies with the market heterogeneity as well as
the correlations between valuations for the ancillary services. In particular, our result suggests
that the optimal pricing strategy depends on the market heterogeneity in different
dimensions: low heterogeneity in valuations for the main with one ancillary service favors
vertical bundling, and low heterogeneity in valuations for ancillary services favors horizontal
bundling. In contrast with one-ancillary-service settings that only accommodate
the vertical dimension, under multiple-ancillary-service settings, firms can utilize both
bundling dimensions when devising bundling tactics. Newly introduced pricing strategies,
such as customized bundling and ancillary services bundling, can be optimal and
their optimality conditions are non-trivial. Furthermore, the correlation between ancillary
services impacts the market heterogeneity and alters the optimal pricing strategy. While
traditional wisdom in bundling literature suggests that negatively-correlated commodities
usually favor (vertical) bundling, our result reveals that correlation between ancillary
services works differently: positive correlation decreases vertical heterogeneity and thus
favors vertical bundling; negative correlation decreases horizontal heterogeneity and thus
favors horizontal bundling.
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