Information Technology Product Bundling in the Presence of Complementarities, Quality Uncertainty, and Network Effects: An Agent-Based Approach

Bundling of information technology products and services is prevalent in markets for information goods, telecommunication services, computer hardware, and software goods. However, factors affecting consumers’ choice of IT product bundles, and the resultant impacts to markets, have not been clearly documented in the information systems literature. In this paper, we develop agent-based simulation models to examine the effects of bundle component quality uncertainty (in either the focal or supplement components), bundle component complementarity (complementary or noncomplementary bundles), and network effects (global market shares or local social network interaction effects) on agents’ choices of product bundles. In addition, we also examine different effects of agents’ risk preferences (risk-aversion, risk-neutrality, and risk-seeking) on their choices of product bundles. Finally, we differentiate the impact of network effects and agents’ risk preferences on bundle choices depending on two types of agent preferences for bundle attributes: homogeneous or heterogeneous preferences. Our findings indicate that global market share network effects have a significant influence on risk-averse and risk-neutral agents’ choice of different product bundles. Market share network effects do not seem to have much influence on bundle choices among risk-seeking agents. Interestingly, our simulation results also indicate that social network interaction effects on a local scale have greater effects on bundle choices of risk-averse and risk-neutral agents, compared to the market share network effect. Our overall results also indicate that agents have the highest preference for complementary product bundles with a good, certain quality focal item than for other types of product bundles. From our research findings, implications for research and practice are presented.

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