Mixed Bundling in Duopoly

Abstract

We present a model where producers of complementary goods have the option to practice mixed bundling. In the first stage of a two-stage game, firms choose between a mixed bundling and a non-bundling strategy. In the second stage, firms choose prices. We show that mixed bundling is a dominant strategy for both firms. However, when the composite goods are not very close substitutes, at the bundling-bundling equilibrium both firms are worse off than when they both commit not to practice mixed bundling.