

How Bundling Benefits Sellers and Buyers - zachcb
http://cdixon.org/2012/07/08/how-bundling-benefits-sellers-and-buyers/

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casca
The author makes a good point that bundling of services _can_ be of value to
both buyers and sellers, but the conclusion that it _is_ of value does not
follow.

The example of 2 people, one willing to pay $10 for ESPN and $3 for The
History Channel and the other willing to pay $3 for ESPN and $10 for The
History Channel disregards the likely majority who would pay $10 for the one
and $0 for the other.

The problem with bundles is that they force you to pay for things that have
zero value to you. And given that the incremental cost of providing the
product approaches zero, this is strongly in the seller's interest.

~~~
pbreit
But really no one places zero value on anything which is why your argument
breaks down.

~~~
SteveJS
Actually you are correct it's not Zero. It's negative. If your claim were
true, no one would clean the crapware off their windows machines. With respect
to tv channels extra channels impose poorer usability for the on screen
guides, and degrade a simple channel surfing experience.

(Note I'm not claiming the bundling prevents purchase, just that there is an
economic opportunity in non-bundled alternatives, such as Windows boxes
without crapware, or solving the problem of a clogged experience due to poor
bundling such as Netflix's focus on surfacing desirable content.)

~~~
pbreit
Unlikely, even if you mistakenly think your provider would only show you the
channels you subscribe to.

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carsongross
Fallacy 1: There is a linear relationship between the area the author calls
"consumer surplus" and the total happiness of customers.

Fallacy 2: There is no relationship between the act of bundling and the
happiness of consumers.

Fallacy 3: The additional money saved by consumers if the goods were not
bundled would not be allocated to higher happiness inducing products.

And so on.

There's an argument to be made regarding the paradox of choice and the
inconvenience of micro-payment systems, but I don't find this one very
convincing.

~~~
dangoldin
Another argument is the negative feeling you get from adding each additional
channel. Saying let's pay another $1 for channel X 30 times has a higher
negative perception than saying - oh $30 for 30 channels.

~~~
larrys
True. Same reason if you go to a restaurant and they started charging for the
tap water a fee, even a nominal fee, you would have a negative reaction
(unless of course all restaurants did that and it for some reason became
accepted practice).

People don't want to pay for something that has no value to them but they will
accept features that have no value if they feel they are included in a total
price of what they are buying (except of course when they can compare products
and make a decision not to buy a product because a competitive one is cheaper
etc.)

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btilly
This is true. However it is also true that if you have both bundled and a la
carte offerings competing, there is no stable competitive price. See
[http://firstmonday.org/htbin/cgiwrap/bin/ojs/index.php/fm/rt...](http://firstmonday.org/htbin/cgiwrap/bin/ojs/index.php/fm/rt/printerFriendly/535/456)
for more. So if you're in a market with one pricing structure competing, be
careful about choosing the other.

Of course even if the existing market bundles, you may have little choice.
Your minimum viable product pretty much by definition cannot be a viable
bundle.

------
physcab
Except I _hate_ bundled services because I feel like I'm getting ripped off. I
don't have a subscription to Rdio because I think "wow, I can listen to my
favorite bands and have access to _all this other content_ ". No. I have a
subscription because the price I pay to listen to my favorite bands is cheaper
than what I would have paid if I were to buy the album on ITunes and more
convenient than pirating.

If all my favorite shows were available on ITunes, I'd kiss cable goodbye in
an instant.

------
grimtrigger
Ugh, I really hate comments in HN's economic threads. As with all economic
theory, this is a _framework_ for thinking about a problem, not a description
of reality.

All the author is saying is that there is a set of assumptions that when met,
bundling benefits both consumers and sellers. Specifically, this set of
assumptions includes 0 transaction costs. Thus, the decrease in transaction
costs does not mean the end of bundling.

------
pbreit
I'm guessing that most HNers will reject the merits of bundling and it's
because they have a limited grasp of human behavior, consumer preferences and
economics. Simply: bundling tv channels is much better for everyone.

Here's another example: 100 channels for $1 each. The average customer chooses
30. Bundling all 100 for $40 would benefit everyone.

~~~
glesica
Limited grasp of human behavior? You're describing the average economist
there, unfortunately. :)

Bundling all 100 channels for $40 doesn't benefit _everyone_. There are a ton
of assumptions embedded in that analysis that may, or may not be true. You
assume that every channel yields positive marginal utility, for example.

Personally, I would pay for _maybe_ three cable channels. But each additional
channel would lower my utility because of the knowledge that I was
contributing to its existence (I sleep better at night knowing that I am not
contributing to the development of shows about obese people with 14 children,
etc.). Thus, I do not have cable at all.

You also assume that each channel costs the same to provide. Under an a-la-
carte pricing scheme the prices would be all over the map because cable
providers couldn't afford to offer certain channels for $1. So "the average
customer chooses 30" would become a bit more complicated.

There are also probably psychological issues in play. For instance, why aren't
HBO and Showtime part of "basic" cable? Surely they could make more money
through bundling! Starz was included (bundled) with Hulu (or was it Netflix?)
for awhile, but it was removed because the network feared losing its image as
a "premium" brand. I suspect HBO feels the same way.

Beyond this, a television channel _is_ a bundle in itself. You get a set of
shows (or even episodes) and movies that you can't alter. So even if channels
were un-bundled, the bundling would just move from cable providers to networks
themselves, or to other intermediaries such as Hulu.

~~~
pbreit
This, on your last paragraph. Premium a la carte channels (bundles,
actually...you usually get 5 or so HBO channels) depend on being
differentiated from the rest, one important variable being differentiated
pricing, distribution and exclusivity.

~~~
glesica
Seems like there is a good chance that the Internet will end up encouraging
this. The same thing happened in magazine publishing. General interest
magazines fell off a cliff, but special-interest magazines generally survived.

The same could be done with television. Instead of buying a subscription to
200 channels, you could just buy a set of comedy channels, or channels related
to cooking and entertaining. Of course the whole idea of a "channel" is really
a legacy concept, but the concept would be the same.

------
herval
Interestingly enough, bundling is illegal in some countries...

