On the Optimality of Pure Bundling for a Monopolist

Domenico Menicucci, Sjaak Hurkens and Doh-Shin Jeon

Abstract: This paper considers a monopolist selling two objects to a single buyer with privately observed valuations. We prove that if the virtual valuation for each object is non-negative for all possible types, then the optimal price schedule is such that the objects are sold only in a bundle. Under an additional regularity condition, pure bundling is the optimal sale mechanism among all individually rational and incentive compatible mechanisms.

Key Words: Monopoly pricing; price discrimination; multi-dimensional mechanism design; pure bundling.

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Journal of Mathematical Ecoomics 60 (October): 33-42 (2015)