To Bundle or Not to Bundle: Determinants of the Profitability of Multi-Item Auctions

Abstract

This article introduces and empirically tests a conceptual model of the key determinants of the profitability of bundling in auction markets. The model encapsulates hypotheses about how seller revenue from the combined (i.e., bundle) auction of component products relative to that from separate auctions of the components is influenced by the heterogeneity in bidders’ product valuations, the degree of complementarity between component products, the particular multi-item selling strategy, and the outside availability of the products. The results of three field experiments show that though bundle auctions tend to be less profitable for noncomplementary and substitute products, they are on average 50% more profitable than separate auctions when there is (even only moderate) complementarity between the component products. The latter effect is greater when the bundle and the separate components are offered at different times, and it is more pronounced for services than for tangible goods. The findings also identify conditions under which each of the essential multi-item selling strategies for fixed-price settings (pure components, pure bundling, and mixed bundling) tends to maximize seller revenue in auctions.