Working Paper: CEPR ID: DP9181
Authors: Neil Gandal; Sarit Markovich; Michael Riordan
Abstract: We examine the importance of office suites for the evolution of the PC office software market in the 1990s. An estimated discrete demand choice model reveals a positive correlation of consumer values for spreadsheets and word processors, a bonus value for suites, and advantages for Microsoft products. We employ the estimates to simulate various hypothetical market structures to evaluate the profitability, welfare, and competitive effects of suites under alternative correlation assumptions.We find that there is a huge benefit to firms from bundling components (i.e., a spreadsheet and a wordprocessor) when the correlation of consumer preferences over the components in the bundle is positive. Our work adds another aspect to the recent work in the strategy literature that examines benefits from bundling when there are complementary relationships across the products in the bundle.
Keywords: bundling; office productivity software; simulations
JEL Codes: D0; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Positive correlation in consumer preferences (D11) | Increased share of consumers purchasing the bundle (D16) |
| Increased share of consumers purchasing the bundle (D16) | Increased profitability (L21) |
| Higher correlation in consumer preferences (D11) | Increased profitability (L21) |
| Introduction of the suite (Y20) | Pro-competitive effect (L49) |
| Pro-competitive effect (L49) | Benefits consumers (D18) |
| Pro-competitive effect (L49) | Negative impact on rival firms (D43) |