Partial vs. Full Mixed Bundling of Digital Goods

The distribution and consumption of media, entertainment, software, and other information goods has transformed in recent years. Consumers demand access on multiple devices, and content providers have responded with different strategies, ranging from independent pricing on each device to a single price for access to all devices. I frame the multi-device design problem as a choice between pure bundling (one price gets both devices), mixed bundling (price each device separately, and offer discount for getting both) and partial bundling (one device is sold separately and also bundled with the second). When one device is considered superior by all customers, then multi-device discounts help the firm if higher-value customers have greater propensity for multi-device access; the choice of bundling strategy depends on certain ratios of valuations and contingent valuations for the two devices. When consumer valuations for the traditional and emerging devices are mutually independent, then a full mixed bundling is optimal when the demand profiles for the two devices are relatively similar; otherwise, it is optimal to sell bundle access to the weaker device into the price for the superior device while also selling the weaker device separately. When devices behave more like substitutes, then such partial bundling is less likely to be optimal. ∗Many thanks to colleagues who generously read and provided useful feedback on earlier drafts, especially D.J. Wu, Olivier Rubel, Amanda Kimball and Manish Gangwar. Partial vs. Full Mixed Bundling of Digital Goods