American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Nested Bundling
American Economic Review
(pp. 2970–3013)
Abstract
A nested bundling strategy creates menus in which more expensive bundles include all the goods of less expensive ones. We study when nested bundling is optimal and determine which nested menu is optimal, when consumers differ in one dimension. We define a partial order on bundles by (i) set inclusion and (ii) sales quantity when sold alone. We show that, under quasi-concavity assumptions, if the undominated bundles with respect to this partial order are nested, then nested bundling is optimal. We present an iterative algorithm that identifies the minimal optimal menu consisting of a subset of the undominated bundles.Citation
Yang, Frank. 2025. "Nested Bundling." American Economic Review 115 (9): 2970–3013. DOI: 10.1257/aer.20230455Additional Materials
JEL Classification
- D11 Consumer Economics: Theory
- D21 Firm Behavior: Theory
- D42 Market Structure, Pricing, and Design: Monopoly
- D82 Asymmetric and Private Information; Mechanism Design
- M31 Marketing