Dominance and Competitive Bundling

We study bundling by a dominant multi-product firm facing competition from a\ud rival multi-product firm. Compared to competition under independent pricing, competition\ud under pure bundling reduces (increases) each firm's profit for low (high) levels\ud of dominance, while for intermediate levels of dominance, it increases the dominant\ud firm's profit but reduces the rival's profit. The latter result provides a justification\ud for the use of contractual bundling to build entry barrier. When we allow for mixed\ud bundling, we find a threshold level of dominance above which the unique outcome is\ud the one under pure bundling