Intertemporal Bundling Under Demand Uncertainty

We develop a two-period model of bundling strategy when a monopolistic firm faces uncertain demand in the second period. We examine the effect of intertemporal bundling on market outcomes in three cases: when the monopolist offers bundling without an option to purchase an individual future product in advance in period 1 (pure bundling), with the option to purchase an individual future product in advance at an uncommited price (mixed bundling without commitment to future price), and with the option to purchase an individual future product in advance at a commited price (mixed bundling with commitment to future price). We find that only pure bundling is profitable even if the capacity constraint is not an issue. In this case, bundling induces substantial increase in overall prices, and thus, is anti-competitive. Mixed bundling is never profitable while it may be welfare-neutral. In the presence of capacity constraint, bundling is unlikely to be profitable