Optimal Debundling Policy: The Case of Non-Homogeneous Demands

Abstract

When agricultural or industrial products are grown or produced such that a variety of quality levels or product characteristics come bundled together, the seller must decide whether or not to undertake the time and expense required to debundle or sort them by component and sell them separately. We analyze this issue both from the perspective of a monopolistic seller and a social planner desiring to maximize social welfare, and show the conditions under which segmentation would be preferred by both the monopolist and the social planner.