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Abstract

This paper shows that for a price setting monopsony, offering to transact in a mixed bundle of goods of uncertain quality is profit enhancing. The magnitude of this enhancement relative to no bundling is greater the smaller the gap in the degree of quality uncertainty between the two goods purchased is. Moreover, contrary to coventional wisdom, the use of mixed purchase bundling by a monopsonist is trade enhancing. There is more room for a dramatic improvement in the volume of trade in a good with a low degree of quality certainty if its purchase is combined with a good of a substantially higher quality certainty.

Publication Type:	Article
Additional Information:	NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Mathematical Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Mathematical Economics, Volume 44, Issues 7–8, July 2008, Pages 672–681, http://dx.doi.org/10.1016/j.jmateco.2006.11.003
Publisher Keywords:	Monopsony; Price discrimination; Mixed bundling; Quality uncertainty; Partner preference; Profit enhancing; Trade enhancing
Subjects:	H Social Sciences > HB Economic Theory
Departments:	School of Policy & Global Affairs > Economics
SWORD Depositor:	Symplectic Administrator

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