Prague Economic Papers 2016, 25(5):577-590 | DOI: 10.18267/j.pep.575

Versioning Goods and Joint Purchase: Substitution and Complementarity Strategies

Francisco Martínez-Sánchez
Department of Quantitative Methods for Economics and Business, Faculty of Economics and Business, University of Murcia, Murcia, Spain (fms@um.es).

In the present paper, we develop a monopoly model of vertical product differentiation for analysing the monopolist's decision about the possibility of versioning goods as substitutes or complements when consumers can buy them simultaneously. In this context, we find that versioning goods as substitutes or complements is optimal for the monopolist if the cost of designing the bundle (the purchase of one unit of each version) is increasing, which implies that making variants of closer substitutes reduces costs. However, if making variants of closer substitutes is costly, the monopolist versions goods as complements only. The final result also depends on the degree of concavity and convexity of the cost function.

Keywords: market segmentation, price discrimination, complementarity, substitutes, joint purchase option, versioning information goods
JEL classification: L10, L12, L15

Published: January 1, 2016  Show citation

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Martínez-Sánchez, F. (2016). Versioning Goods and Joint Purchase: Substitution and Complementarity Strategies. Prague Economic Papers, 25(5), 577-590. doi: 10.18267/j.pep.575
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