On the Optimality of Pure Bundling for a Monopolist

• Authors: Sjaak Hurkens.
• BSE Working Paper: 110254 | September 15
• Keywords: monopoly pricing , price discrimination , multi-dimensional mechanism design , pure bundling
• JEL codes: D42, D82, L11
• monopoly pricing
• price discrimination
• multi-dimensional mechanism design
• pure bundling

This paper considers a monopolist selling two objects to a single buyer with privately observed valuations. We prove that if each buyer’s type has a non-negative virtual valuation for each object, then the optimal price schedule is such that the objects are sold only in a bundle; weaker conditions suffice if valuations are independently and identically distributed. Under somewhat stronger conditions, pure bundling is the optimal sale mechanism among all individually rational and incentive compatible mechanisms.