Nested Bundling

Frank Yang (Stanford Graduate School of Business)
Thu, Jan 25 2024, 3:30pm - 5:00pm PST
Landau Lucas A

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A nested bundling strategy creates menus in which more expensive bundles include all the goods of the less expensive ones. We study when nested bundling is optimal and determine which nested menu is optimal, when consumers differ in one dimension. We introduce a partial order on the set of bundles, defined by (i) set inclusion and (ii) sales quantity when sold alone. We show that, under quasiconcavity assumptions, if the undominated bundles with respect to this partial order are nested, then nested bundling is optimal. We provide an iterative procedure to determine the minimal optimal menu that consists of a subset of the undominated bundles. The proof technique involves a new constructive monotone comparative statics theorem. We present partial converses. Additionally, we provide distributionally robust characterizations of nested bundling. We also show that under suitable conditions it is possible to extend our analysis to allow multidimensional heterogeneity.