Value of bundling strategies in introducing low quality products
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    Abstract:

    How to introduce low quality products into existing high quality product lines has become an impor-tant issue faced by firms,especially when low quality products have various marginal costs and customers an-ticipate future sales and choose purchase timing to maximize their expected surplus. This paper studies the val-ue of bundling strategies in low quality product introduction. Specifically,four types of strategies are consid-ered: the benchmark strategy,which sells high quality products only,pure bundling strategy,unbundling strategy as well as mixed bundling strategy which sells low and high quality products simultaneously. Our con-clusions show that when low quality products have low marginal cost and strongly threaten to cannibalize the sale of the existing products,firms should not introduce low quality products. Furthermore,when low quality products have medium or low marginal cost and weakly threaten to cannibalize the sale of the existing prod-ucts,firms should choose mixed bundling strategy to offer low quality products. Finally,the applicable condi-tions for both the pure bundling strategy and unbundling strategy are analyzed.

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  • Online: April 14,2018
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