DP9181 Ain?t it "Suite"? Bundling in the PC Office Software Market

Author(s): Neil Gandal, Sarit Markovich, Michael Riordan
Publication Date: October 2012
Date Revised: May 2018
Keyword(s): Bundling, Office Productivity Software, Simulations
JEL(s): D0, L1
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9181

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.