Commodity Bundling (Video Version)

in hive-100421 •  9 months ago  (edited)

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Hi Everyone,

This post contains a video, which is a follow up to my written post ‘Economic Concepts #13 – Commodity Bundling’. I recommend that you read this post as well as watching the video. The written post contains some of the technical and mathematical explanations to accompany the content of the video. The video explains commodity bundling using both real life and hypothetical examples. The real life examples demonstrate how commodity bundling is used. The hypothetical examples explain how commodity bundling can be beneficial to both the buyer and the seller. The video also explains the importance of selecting appropriate products to bundle as well as selecting a price that will attract more customers without losing profits from existing customers.

YouTube Version

Just in case, the 3Speak version becomes unavailable at some point. I have also uploaded the video to YouTube.

Definition of commodity bundling


Commodity bundling occurs when a firm sells products individually and in packages. Fast food restaurants often use commodity bundling. Fast food restaurants often sell food or drinks as either individual items or part of a meal. The price of the meal is lower than if the same items had been bought individually.

Commodity bundling can be considered as a form of second degree price discrimination. The buyer chooses if they want to buy products individually at the higher price or buy the bundle at a lower price. However, the bundle may include products that the buyer does not particularly want.

Additional Information


To help follow the hypothetical example in the video, I have included slides containing information about the example. This information includes:

  • The 20 buyers’ willingness-to-pay for the five products.
  • The cost and price of the products presented as demand and supply curves.
  • The products that each person would buy based on their willingness-to-pay and the price of the products.
  • The people that would buy the bundle at a price of $14.40 and $14.00 as well as the change in profit to the firm from these decisions.

Willingness-to-pay

TABLE1.jpg

Demand, supply and price

FIG1.jpg

Product each person would buy individually

TABLE2.jpg

People buying the bundle at $14.40

TABLE3.jpg

People buying the bundle at $14.00

14.00.jpg

Final words

I hope that you found the video and the slides provided useful. From the information provided in this post and video, do you think commodity bundling is good or bad for customers? What about other forms of price discrimination such as bulk buying or provision of services at a lower price for children or the elderly? I would love you to share your opinions in the comment section.

You may also be interested in watching my video, Price Discrimination (Video Version). The price discrimination video contains more information about price discrimination in general and adds some additional context for the commodity bundling video contained in this post.

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@spectrumecons, In my opinion this can be divided into two aspects and those are Wants and Needs. Some people don't have any idea what product they will going to buy and that falls into Want and sometimes these kind of Customers buy products whose cost is high. But Needs can be more Economical where Customers are very clear which product they want to consume.

Keep up the great work and stay blessed.

Posted using Partiko Android

Impulse buys are most likely to be wants and people buy on the spot without further research. If something is a need, people generally know how to get hold of it and therefore less likely to overspend. In regards to commodity bundling, the temptation is the lower marginal cost of buying something that would not be normally bought. Imagine a meal comes with a burger, fries, drink and ice-cream. A person may only normally buy the burger, fries and drink but the meal with the ice-cream may only cost an extra 20c. The low price of the ice-cream may tempt that person to get the meal with the ice-cream and pay an extra 20c for something they did not intend to buy in the first place.

Thank you so much for putting more light on this subject. Keep spreading the Knowledge and keep growing. Stay blessed.

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