Abstract
Bundling of two more products is a common marketing strategy followed by many retailers and manufacturers. While the literature on the bundling is vast and varied (see Venkatesh and Mahajan, 2009, for a review, only a handful of the studies deal with bundling decision under the context of a distribution channel. Motivated by the observation that retailers like Amazon.com sell a bundle of blu-ray/DVD disks as well as standalone blu-ray disks (but not standalone DVDs) for recent and popular movies, we explore the decision problems associated with bundling of a basic product and a premium product in distribution channels. Our work provides economic insights about bundling of basic and premium products and provides guidelines about when bundling by a retailer is profitable over bundling by a manufacturer.
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