Operational implications of retailer bundling

This dissertation explores the interplay of a firm's operations issues and concerns and bundling decisions. Chapter 2 studies how supply availability affects a firm's bundling decision. We examine a firm's bundling decision when the supply of a product is limited. We offer a new rationale for a firm to bundle: limited supply can induce bundling had a firm unbundled without limited supply. We suggest that, when bundling is driven by limited supply, a firm should bundle asymmetric products with positively correlated consumer valuations. Chapter 3 incorporates demand uncertainty and studies a firm's capacity decision for a platform product when the firm can bundle this product with another peripheral product. We first show that the firm's optimal strategies depend on the degree of supply-demand mismatch. When the demand exceeds supply, the firm should charge a high bundle price to get around the fixed retail price for a higher margin. When the supply outstrips the demand, the firm should charge a low bundle price to clear the inventory, thus reducing the inventory risk. Further, we uniquely identify two contrasting effects bundling has on a firm's ordering: moderating and aggravating effects. When the firm's procurement cost is high, the firm's order under bundling is less sensitive to procurement cost as compared to no-bundling benchmark--the moderating effect. When the firm's procurement cost is high, bundling leads to a more sensitive (to procurement cost) firm order--the aggravating effect. Chapter 4 studies a distribution channel where a retailer procures one product from a manufacturer, and has two retail options: bundling this product with another product or retailing it alone. We find that strategic interactions of channel members result in a number of results new to the literature. For instance, a bundling option, if executed in equilibrium, hurts the retailer when the manufacturer has a low production cost. We also offer a new reason why a retailer bundles: the retailer can use the bundling option as a strategic leverage to extract concession from the manufacturer.