Bundling, information and platform competition

This paper studies the impact of pure bundling and the level of consumer information about developer subscription prices on duopolistic platform competition. We find that, in the presence of asymmetric network externalities, pure bundling emerges as a profit-maximizing strategy when platforms subsidize the low-externality side (consumers) and make profits on the high-externality side (developers). Bundling can be used as a tool to enhance the “divide-and-conquer” nature of platform’s pricing strategies, and is more effective in stimulating consumer demand the larger proportion of informed consumers. We also find that consumer information intensifies price competition. Consequently, bundling and more consumer information improve consumer welfare, but bundling is less likely to emerge as the fraction of informed consumers increases.