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  • Writer's pictureDan O'Brien

Tying, Bundling, and the Microfoundations of Double Marginalization

What is double marginalization? The answer is technical, but the technical discussion is long overdue.



Tying, Bundling, and the Microfoundations of Double Marginalization


Daniel P. O'Brien

and

Greg Shaffer


We develop the theory of double marginalization, nesting the textbook understanding of the single-product case and identifying new effects in the multi-product case. Double marginalization arises from constraints on bundling units of the same product, different products, or both. The elimination of double marginalization involves bundling that prevents the buyer from arbitraging units. Standard intuition that nonlinear contracts eliminate double marginalization by eliminating one of two margins misses important effects. Practices known to affect double marginalization can have unexpected effects, and practices typically not associated with double marginalization—tying and bundling, horizontal mergers, horizontal divestitures—can have double-marginalization effects.

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