What is commodity bundling Refer to the problem discussed in

What is commodity bundling? Refer to the problem discussed in class – assume that the cable TV provider uses a commodity-bundle strategy such that the packages are sold as one item. What price should the firm charge to maximize revenues? How much will it earn?

Solution

A firm that sells goods only in package form has adopted a pure bundlingstrategy. A firm that sells the same goods separately as well as in packages has adopted a mixedbundling strategy. Commodity bundles sometimes include goods that cannot be sold separately in the market place.

A strategy observed by managerial economists that increases profits for business is mixed bundling. Mixed bundling allows customers to purchase the goods either together as a bundle or separately. One of the crucial differences between mixed bundling and pure bundling is that some customers purchase only a single item.

These customers have a reservation price greater than the actual price for one item. However, they don’t buy the bundle because the difference between the bundle price and the price of the first item is less than their reservation price for the second item.