Abstract

We model a monopolist who offers a product and a complementary service, where only the latter exhibits positive network externalities. We focus on the online game industry as a representative case in which the product (the game), unlike the service (access to the interactive online play mode), has zero marginal cost, and consider two-potential pricing strategies: 1) the bundle pricing, in which the vendor charges a single price for the product and the service; and 2) the separate pricing, in which the vendor sets the prices of the product and the service separately. We find that, in contrast to the common result in the bundling literature, bundling may increase consumer surplus, while the monopolist chooses not to offer the bundle. We offer theoretical evidence that this is due to the presence of network externalities.

Download

Share

COinS