A Strategic Effect of Bundling on Product Distribution
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Purpose – This study examines a bundling effect on production and distribution in a patent-protected industry. Despite the heavy use of bundling strategies in the information and technology industry, literature has paid scant attention to bundling of intellectual property rights. This study examines a theoretical exploration of the bundling effect on licensing behavior. Research design, data, and methodology – To address this behavior, we build a simplified model consisting of three stages: 1) bundling decision, 2) licensing agreement, and 3) competition. The subgame perfect Nash equilibrium is applied to the model. Results – A single-patent holder with superior technology grants its own license to the multiple-patent firm, thereby leaving the market. Anticipating the single right holder’s licensing strategy, the multiple-patent firm offers a bundle, making the single- right holder’s bargaining position weaker. Conclusions – Bundling is an effective business strategy, resulting in multiple products for a firm as it faces other firms with single-product lines in each market. Taking advantage of the multi-patent or multi-product lines, the firm utilizes the bundling strategy obtaining better technology from the standalone single- patent firms.
Abstract
Purpose – This study examines a bundling effect on production and distribution in a patent-protected industry. Despite the heavy use of bundling strategies in the information and technology industry, literature has paid scant attention to bundling of intellectual property rights. This study examines a theoretical exploration of the bundling effect on licensing behavior. Research design, data, and methodology – To address this behavior, we build a simplified model consisting of three stages: 1) bundling decision, 2) licensing agreement, and 3) competition. The subgame perfect Nash equilibrium is applied to the model. Results – A single-patent holder with superior technology grants its own license to the multiple-patent firm, thereby leaving the market. Anticipating the single right holder’s licensing strategy, the multiple-patent firm offers a bundle, making the single- right holder’s bargaining position weaker. Conclusions – Bundling is an effective business strategy, resulting in multiple products for a firm as it faces other firms with single-product lines in each market. Taking advantage of the multi-patent or multi-product lines, the firm utilizes the bundling strategy obtaining better technology from the standalone single- patent firms.
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