Bundling always increases a multi-product monopolist's profit:
A) whenever the marginal rate of substitution is decreasing.
B) whenever an increase of a dollar in the willingness to pay for one good implies an increase of a dollar in the willingness to pay for another good and the marginal cost is zero.
C) when doing so does not alter consumers' willingness to pay for the bundle and the monopolist can extract all of aggregate surplus as profit.
D) if and only if the monopolist is also perfectly price discriminating.

Question

Quizplus · Accepted Answer

Bundling can increase a multi-product monopolist's profit when it allows the monopolist to capture more consumer surplus without altering consumers' willingness to pay for the bundled products. This is particularly effective if the monopolist can appropriate all the aggregate surplus as profit, which doesn't necessarily require perfect price discrimination or specific conditions on the marginal rate of substitution or marginal costs.

Bundling Always Increases a Multi-Product Monopolist's Profit