Bundling and firm reputation
By: James D. Dana, Jr. & Kathryn E. Spier.
Contributors: Spier, Kathryn E.; John M. Olin Center for Law, Economics, and Business.
Series: Discussion paper -- no. 649; Discussion paper (John M. Olin Center for Law, Economics, and Business : Online) -- no. 649.
Publisher: Harvard Law School
Published: 2009
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Subjects: Law -- Economic aspects; Bundling (Marketing) -- Economic aspects; Customer loyalty; Consumer behavior -- Economic aspects
Description: "By bundling experience goods, a manufacturer can more easily maintain a reputation for high quality over time.  Formally, we extend Klein and Lefler's (1981) repeated moral hazard model of product quality to consider multi-product firms and imperfect private learning by consumers.  When consumers are small, receive imperfect private signals of product quality, and have heterogeneous preferences over available products, then purchasing multiple products from the same firm makes consumers more effective monitors of the firm's behavior.  These consumers observe more signals of firm behavior and detect shirking with a higher probability, which creates stronger incentives for the firm to produce high quality products.  By constraining all of the firm's consumers to use more effective monitoring and punishment strategies, bundling creates an even stronger incentive for a multi-product firm to produce high quality products.  The impact of bundling on incentives is even greater when consumers cannot identify which of the goods is responsible for poor overall product performance"--John M. Olin Center for Law, Economics, and Business web site.
Notes: Title from PDF file as viewed on 10/19/2009.

Includes bibliographical references.

Also available in print.

System requirements: Adobe Acrobat Reader.

Mode of access: World Wide Web.