Commodity Bundling (Video Version)

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    spectrumecons

    Published on Dec 12, 2019
    About :

    Hi Everyone,

    This post contains a video, which is a follow up to my written post ‘Economic Concepts #13 – Commodity Bundling’. I recommend that you read this post as well as watching the video. The written post contains some of the technical and mathematical explanations to accompany the content of the video. The video explains commodity bundling using both real life and hypothetical examples. The real life examples demonstrate how commodity bundling is used. The hypothetical examples explain how commodity bundling can be beneficial to both the buyer and the seller. The video also explains the importance of selecting appropriate products to bundle as well as selecting a price that will attract more customers without losing profits from existing customers.

    YouTube Version

    Just in case, the 3Speak version becomes unavailable at some point. I have also uploaded the video to YouTube.

    Definition of commodity bundling


    Commodity bundling occurs when a firm sells products individually and in packages. Fast food restaurants often use commodity bundling. Fast food restaurants often sell food or drinks as either individual items or part of a meal. The price of the meal is lower than if the same items had been bought individually.

    Commodity bundling can be considered as a form of second degree price discrimination. The buyer chooses if they want to buy products individually at the higher price or buy the bundle at a lower price. However, the bundle may include products that the buyer does not particularly want.

    Additional Information


    To help follow the hypothetical example in the video, I have included slides containing information about the example. This information includes:

    • The 20 buyers’ willingness-to-pay for the five products.
    • The cost and price of the products presented as demand and supply curves.
    • The products that each person would buy based on their willingness-to-pay and the price of the products.
    • The people that would buy the bundle at a price of $14.40 and $14.00 as well as the change in profit to the firm from these decisions.

    Willingness-to-pay

    TABLE1.jpg

    Demand, supply and price

    FIG1.jpg

    Product each person would buy individually

    TABLE2.jpg

    People buying the bundle at $14.40

    TABLE3.jpg

    People buying the bundle at $14.00

    14.00.jpg

    Final words

    I hope that you found the video and the slides provided useful. From the information provided in this post and video, do you think commodity bundling is good or bad for customers? What about other forms of price discrimination such as bulk buying or provision of services at a lower price for children or the elderly? I would love you to share your opinions in the comment section.

    You may also be interested in watching my video, Price Discrimination (Video Version). The price discrimination video contains more information about price discrimination in general and adds some additional context for the commodity bundling video contained in this post.

    More posts

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    If you want to read any of my other posts, you can click on the links below. These links will lead you to posts containing my collection of works. These posts will be updated frequently.

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