Question 24:

One type of nonlinear pricing is a tie-in sale, in which customers can buy one product only if they agree to purchase another product as well. There are two forms of tie-in sales. The first type is a requirement tie-in sale, in which customers who buy one product from a firm are required to make all their purchases of another product from that firm. The second type of tie-in sale is package tie-in sale, in which two goods are combined so that customers cannot buy either good separately.

a) Is it possible that a tie-in sales increase efficiency? Discuss and provide examples.

Another price strategy used by firms is bundling. In pure bundling, the goods are not sold separately but are sold only together. In mixed bundling, the firm offers consumers the choice of buying goods separately or as a bundle.

b) Give real world examples of both types of bundling.

c) What determines whether or not a firm should bundle two products or services?

d) Why do firms engage in bundling and tying practices? Discuss and provide examples.