Bundling as an Optimal Selling Mechanism for a Multiple-Good Monopolist

Alejandro Manelli and Daniel R. Vincent , Journal of Economic Theory 127(1) , 1-35 , March 2006.

Multiple objects may be sold by posting a schedule consisting of one price for each possible bundle and permitting the buyer to select the price–bundle pair of his choice. We identify conditions that must be satisfied by any price schedule that maximizes revenue within the class of all such schedules. We then provide conditions under which a price schedule maximizes expected revenue within the class of all incentive compatible and individually rational mechanisms in the n-object case. We use these results to characterize environments, mainly distributions of valuations, where bundling is the optimal mechanism in the two and three good cases.

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