How Bundling Benefits Sellers and Buyers

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.<p>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.<p>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.

Fallacy 1: There is a linear relationship between the area the author calls "consumer surplus" and the total happiness of customers.<p>Fallacy 2: There is no relationship between the act of bundling and the happiness of consumers.<p>Fallacy 3: The additional money saved by consumers if the goods were not bundled would not be allocated to higher happiness inducing products.<p>And so on.<p>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.

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 <a href="http://firstmonday.org/htbin/cgiwrap/bin/ojs/index.php/fm/rt/printerFriendly/535/456" rel="nofollow">http://firstmonday.org/htbin/cgiwrap/bin/ojs/index.php/fm/rt...</a> for more. So if you're in a market with one pricing structure competing, be careful about choosing the other.<p>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.

Except I <i>hate</i> 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 <i>all this other content</i>". 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.<p>If all my favorite shows were available on ITunes, I'd kiss cable goodbye in an instant.

Ugh, I really hate comments in HN's economic threads. As with all economic theory, this is a <i>framework</i> for thinking about a problem, not a description of reality.<p>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.

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

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