Bundling and International Market Segmentation

Abstract

The paper shows how firms, by bundling their products with nontradables, may contribute to the segmentation of international oligopoly markets. We develop a simple example with two products: one that is homogeneous across markets, and one that is bundled with a nontradable, e.g., local services. Integration of the markets for the homogeneous product yields the expected price equalization across markets. However, integration of the markets for bundled products leaves the economy entirely unaffected. Hence, the standard methodology of comparing a segmented and an integrated equilibrium would exaggerate the effects of integration in this economy.

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