Besides pricing its separate products, oligopolistic firms frequently choose to
bundletheir products, that is, to sell two or more products as a package. Under
the right circumstances, bundling can be considerably more profitable than
separate sales. Consider the following example.BUNDLING FILMS A movie studio has two films ready for sale to two theater
chains. Each chain consists of 500 multiscreen theaters. Table 9A.1a shows the
values each chain places on each film. For instance, chain 1 is willing to pay up
to $13,000 per screen per week for film X; chain 2 will pay only $7,000; and so
on. (The differences in value reflect the respective geographic patterns of the
chains’ theaters and the fact that some films tend to “play better” in some
regions and cities than others.)
The movie studio has a number of options in pricing films. If it sells film
X separately and charges $7,000 per screen per week, it will sell to both
chains, earning total revenue of $7 million per week.^1 If it charges $13,000
instead, it will sell only to chain 1, earning $6.5 million in revenue. Clearly,392
APPENDIX TO CHAPTER 9Bundling and Tying
(^1) Here and throughout, we are presuming that a chain will purchase the film at a price equal to its
value; in fact, purchasing or not would be a matter of indifference. If you are worried about this
knife-edge case, think of the studio as charging a slightly lower price, $6,995 say, in order to pro-
vide the chain a strictly positive incentive to buy. (Note that this makes no essential difference in
the revenue calculations.)
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