Bundling and Competition for Slots: On the Portfolio E¤ects of Bundling

We consider competition among n sellers when each of them sells a portfolio of distinct products to a buyer having limited slots (or shelf space). We study how bundling a¤ects competition for slots. When the buyer has k number of slots, e ¢-ciency requires the slots to be allocated to the best k products. We \u85rst \u85nd that without bundling, equilibrium often does not exist and hence the outcome is often ine ¢ cient. Each seller has an incentive to bundle his products since bundling re-duces competition from rival products. Furthermore, under bundling, an e ¢ cient equilibrium always exists. In particular, in the case of digital goods, all equilibria are e ¢ cient if \u85rms do not use slotting contracts. However, ine ¢ cient equilibria can exist if \u85rms use slotting contracts. We also identify portfolio e¤ects of bundling and analyze the consequences on horizontal merger. Finally, we derive clear-cut policy implications on bundling and slotting contracts in terms of allocation of slots and foreclosure