We study the strategy of bundling a large number of information goods, such as those increasingly available on the Internet, and selling them for a fixed price. We analyze the optimal bundling strategies for a multiproduct monopolist, and we find that bundling very large numbers of unrelated information goods can be surprisingly profitable. The reason is that the law of large numbers makes it much easier to predict consumers ’ valuations for a bundle of goods than their valuations for the individual goods when sold separately. As a result, this “predictive value of bundling ” makes it possible to achieve greater sales, greater economic efficiency, and greater profits per good from a bundle of information goods than can be attained when the same goods are sold separately. Our main results do not extend to most physical goods, as the marginal costs of production for goods not used by the buyer typically negate any benefits from the predictive value of large-scale bundling. While determining optimal bundling strategies for more than two goods is a notoriously difficult problem, we use statistical techniques to provide strong asymptotic results and bounds on profits for bundles of any arbitrary size. We show how our model can be used to analyze the bundling of complements and substitutes, bundling in the presence of budget

This article presents a comparative analysis of possible postponement strategies in a two-stage decision model where firms make three decisions: capacity investment, production (inventory) quantity, and price. Typically, investments are made while the demand curve is uncertain. The strategies differ in the timing of the operational decisions relative to the realization of uncertainty. We show how competition, uncertainty, and the timing of operational decisions influence the strategic investment decision of the firm and its value. In contrast to production postponement, price postponement makes the investment and production (inventory) decisions relatively insensitive to uncertainty. This suggests that managers can make optimal capacity decisions by deterministic reasoning if they have some price flexibility. Under price postponement, additional postponement of production has relatively small incremental value. Therefore, it may be worthwhile to consider flexible ex-post pricing before production postponement reengineering. While more postponement increases firm value, it is counterintuitive that this also makes the optimal capacity decision more sensitive to uncertainty. We highlight the different impact of more timely information, which leads to higher investment and inventories, and of reduced demand uncertainty, which decreases investment and inventories. Our analysis suggests appropriateness conditions for simple make-to-stock and make-to-order strategies. We also present technical sufficiency and uniqueness conditions. Under price postponement, these results extend to oligopolistic and perfect competition for which pure equilibria are derived. Interestingly, the relative value of operational postponement techniques seems to increase as the industry becomes more competitive.

This is a preprint of an article that is forthcoming in Journal of Economics and Management Strategy. I am grateful for helpful comments from a co-editor, anonymous referees, Peter Arcidiacono, Andrew Biehl,

Abstract not found

Abstract — We consider a quantity-setting duopoly model, and we study the decision to move first or second, by assuming that the firms produce homogeneous goods and that there is some demand uncertainty. The competitive phase consists of two periods, and in either period, the firms can make a production decision that is irreversible. As far as the firms are allowed to choose (non-cooperatively) the period they make the decision, we study the circumstances that favour sequential rather than simultaneous decisions.

Abstract. Existing models show that herding in decisions can cause significant information loss, inferior information aggregation and impaired decision making. However, we show that in a multi-stage decision setting with endogenous information production, herding on the initial decision can actually result in superior aggregate information and improved decisions. This is because the possibility of herding by a follower incentivizes the leader to increase its ex-ante information production to an extent that it can dominate the information loss from herding. Examples include decisions to enter new markets, fund R&D, and provide early-stage venture capital.

herding improve investment decisions?

We examine an incumbent’s trade-o ¤ between expanding her business, which increases her pro…ts, and the information that such expansion signals to potential competitors, which attracts them to the market. Speci…cally, we consider a signaling game where the incumbent knows the actual realization of demand, whereas the entrant can only observe whether the incumbent decided to expand the size of her business in the past. In particular, we analyze the set of pooling and separating equilibria surviving the intuitive criterion in this signaling model. Our results can support the more predictable observation that only incumbents in good market conditions expand their businesses (separating equilibria), but also the less obvious and interesting pooling equilibria in which no …rm expands her business and despite such non-expansion, entrants choosing to enter the market. This equilibrium result helps us provide an explanation for the high failure rates that new …rms face when entering a market, as con…rmed by multiple empirical studies.

www.elsevier.com/locate/econbase Simultaneous and sequential price competition in heterogeneous duopoly markets: experimental evidence

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