Pure bundling in economics is a pricing strategy where a firm sells two or more products only as a combined package, and the individual items within the bundle are not available for purchase separately.
Understanding Pure Bundling
At its core, pure bundling occurs when a company decides to sell products only as a bundled package. This means they are not available to buy separately. It's a distinct strategy compared to mixed bundling, where products are offered both individually and as a bundle.
Why Firms Use Pure Bundling
Companies employ pure bundling strategies for several reasons:
- Increased Revenue/Profit: By bundling products with varying consumer valuations, firms can often extract more revenue than selling items individually, especially when consumer preferences for the items are negatively correlated.
- Cost Reduction: Bundling can simplify inventory management, marketing, and distribution costs.
- Entry Deterrence: Forcing consumers to buy a bundle can make it harder for competitors who only offer individual components to compete effectively.
- Value Proposition: It can create a perceived higher value for the customer by offering a package deal.
- Eliminate "Cherry-Picking": Prevents customers from buying only the most popular or cheapest items and ignoring others.
Examples of Pure Bundling
Pure bundling is common in various industries:
- Cable TV Packages: Historically, many cable providers offered channels only in pre-set bundles, not individually. You had to buy a package, even if you only wanted a few channels.
- Software Suites: Sometimes, software companies sell a collection of programs (e.g., word processor, spreadsheet, presentation software) only as a suite, and you cannot buy just one component application separately.
- Restaurant Combo Meals: While often a form of mixed bundling (items sometimes available individually), some specific promotions or limited-time offers might be strictly bundled.
- Video Game Collections: Selling several older games together as a collection where the individual games are no longer sold separately digitally.
Pure Bundling vs. Mixed Bundling
It's helpful to distinguish pure bundling from its more common counterpart, mixed bundling:
| Feature | Pure Bundling | Mixed Bundling |
|---|---|---|
| Availability | Only available as a bundle | Available as a bundle and individually |
| Purchase Options | Single option (buy the bundle) | Multiple options (buy bundle, or buy items separately) |
| Flexibility | Less flexible for consumers | More flexible for consumers |
Practical Insights
Pure bundling works best when there is significant variation in consumer preferences for the individual items being bundled, and these preferences are negatively correlated. For instance, if some customers highly value product A but not B, while others value B but not A, bundling can ensure both types of customers still contribute to the sales of both products within the package.
However, this strategy can also alienate customers who only want one specific item or who feel they are being forced to pay for products they don't need. Regulatory bodies sometimes scrutinize pure bundling, especially by dominant firms, under antitrust laws if it's seen as anti-competitive.
In summary, pure bundling is a strategic decision by a firm to offer products exclusively in a combined package, eliminating individual purchase options to potentially increase revenue and reduce costs, but requiring careful consideration of consumer preferences and potential drawbacks.
