Mixed Bundling in Two-Sided Markets in the Presence of Installed Base Effects

We analyze mixed bundling in two-sided markets where installed base e ects are present and nd that the pricing structure deviates from traditional bundling as well as the standard twosided markets literature|{we determine prices on both sides fall with bundling. Mixed bundling acts as a price discrimination tool segmenting the market more e ciently. Consequently, as a by-product of this price discrimination, the two sides are better coordinated and social welfare is enhanced. We show unambiguously that platform participations increase on both sides of the market. After theoretically evaluating the impact mixed bundling has on prices and welfare, we take the model predictions to data from the portable video game console market. We nd empirical support for all theoretical predictions.

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