Commodity Bundling: The Gaussian Case*

In order to obtain comparative results for alternative pricing strategies, the distribution of buyers ' reservation prices in the Adams-Yellen framework is assumed to be bivariate normal. Pure bundling then operates by reducing effective buyer diversity, thus facilitating capture of consumers ' surplus. It apparently always makes buyers worse off than unbundled sales; it is more profitable if average reservation prices are high enough. Mixed bundling combines advantages of both pure bundling and unbundled sales, and it is apparently generally more profitable than either. Bundling policies, which treat both goods symmetrically, seem most attractive under symmetric reservation price distributions