On the profitability of interfirm bundling in oligopolies

This paper examines the profitability of interfirm bundling among independent single-good producers in a two-dimensional Hotelling framework. We show that interfirm bundling tends to relax price competition by preventing consumers from mixing and matching (i.e., making it difficult to switch brands) and therefore is more profitable than separate sales, provided that firms are sufficiently symmetric. Hence, firms have mutual incentives to offer their products as a bundle or to make exclusive dealing arrangements. This result sheds new light on the competitive effect of bundling in oligopolies that have been neglected in the literature.