How Bundling Benefits Sellers and Buyers • Hacker News Board

Re: How Bundling Benefits Sellers and Buyers

#11

Post by SteveJS » Sun, Jul 08, 2012, 7:39 PM UTC

pbreit wrote: post #7

casca wrote: post #3

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. 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. The problem with…

But really no one places zero value on anything which is why your argument breaks down.

Actually you are correct it's not Zero. It's negative. If your claim were true, no one would clean the crapware off their windows machines. With respect to tv channels extra channels impose poorer usability for the on screen guides, and degrade a simple channel surfing experience.

(Note I'm not claiming the bundling prevents purchase, just that there is an economic opportunity in non-bundled alternatives, such as Windows boxes without crapware, or solving the problem of a clogged experience due to poor bundling such as Netflix's focus on surfacing desirable content.)

Re: How Bundling Benefits Sellers and Buyers

#12

Post by pbreit » Sun, Jul 08, 2012, 8:26 PM UTC

dangoldin wrote: post #8

pbreit wrote: post #7

Earlier quoted context omitted.

But really no one places zero value on anything which is why your argument breaks down.

A low value relative to the others doesn't really affect the analysis. I'm sure there are tons of channels people don't go to each month. Imagine being an English only speaker and getting a Spanish channel - what would you pay for it?

An extreme example and still totally unconvincing. I don't speak Spanish but would like to learn. My wife's family doesn't speak spanish but their nanny does. My brother doesn't speak Spanish but watches futbol. My dad likes to stop on telemundo periodically. My other sister has a few Spanish speaking friends. And on and on.

Re: How Bundling Benefits Sellers and Buyers

#13

Post by pbreit » Sun, Jul 08, 2012, 8:29 PM UTC

SteveJS wrote: post #11

pbreit wrote: post #7

Earlier quoted context omitted.

But really no one places zero value on anything which is why your argument breaks down.

Actually you are correct it's not Zero. It's negative. If your claim were true, no one would clean the crapware off their windows machines. With respect to tv channels extra channels impose poorer usability for the on screen guides, and degrade a simple channel surfing experience. (Note I'm not claiming the bundling prevents purchase, just that there is an economic opportunity in non-bundled alternatives, such as Win…

Unlikely, even if you mistakenly think your provider would only show you the channels you subscribe to.

Re: How Bundling Benefits Sellers and Buyers

#14

Post by glesica » Sun, Jul 08, 2012, 8:35 PM UTC

pbreit wrote: post #6

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

Limited grasp of human behavior? You're describing the average economist there, unfortunately. :)

Bundling all 100 channels for $40 doesn't benefit everyone. There are a ton of assumptions embedded in that analysis that may, or may not be true. You assume that every channel yields positive marginal utility, for example.

Personally, I would pay for maybe three cable channels. But each additional channel would lower my utility because of the knowledge that I was contributing to its existence (I sleep better at night knowing that I am not contributing to the development of shows about obese people with 14 children, etc.). Thus, I do not have cable at all.

You also assume that each channel costs the same to provide. Under an a-la-carte pricing scheme the prices would be all over the map because cable providers couldn't afford to offer certain channels for $1. So "the average customer chooses 30" would become a bit more complicated.

There are also probably psychological issues in play. For instance, why aren't HBO and Showtime part of "basic" cable? Surely they could make more money through bundling! Starz was included (bundled) with Hulu (or was it Netflix?) for awhile, but it was removed because the network feared losing its image as a "premium" brand. I suspect HBO feels the same way.

Beyond this, a television channel is a bundle in itself. You get a set of shows (or even episodes) and movies that you can't alter. So even if channels were un-bundled, the bundling would just move from cable providers to networks themselves, or to other intermediaries such as Hulu.

Re: How Bundling Benefits Sellers and Buyers

#15

Post by dangoldin » Sun, Jul 08, 2012, 8:38 PM UTC

pbreit wrote: post #12

dangoldin wrote: post #8

Earlier quoted context omitted.

A low value relative to the others doesn't really affect the analysis. I'm sure there are tons of channels people don't go to each month. Imagine being an English only speaker and getting a Spanish channel - what would you pay for it?

An extreme example and still totally unconvincing. I don't speak Spanish but would like to learn. My wife's family doesn't speak spanish but their nanny does. My brother doesn't speak Spanish but watches futbol. My dad likes to stop on telemundo periodically. My other sister has a few Spanish speaking friends. And on and on.

Everyone has their own utility and I guess we just differ on ours. I don't want to generalize but I personally wouldn't pay more to have a set of Spanish channels. Arguably if there were too many Spanish channels I'd pay less since navigating my TV would be too difficult.

Re: How Bundling Benefits Sellers and Buyers

#16

Post by pbreit » Sun, Jul 08, 2012, 9:10 PM UTC

glesica wrote: post #14

pbreit wrote: post #6

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

Limited grasp of human behavior? You're describing the average economist there, unfortunately. :) Bundling all 100 channels for $40 doesn't benefit everyone . There are a ton of assumptions embedded in that analysis that may, or may not be true. You assume that every channel yields positive marginal utility, for example. Personally, I would pay for maybe three cable channels. But each additional channel would lower m…

This, on your last paragraph. Premium a la carte channels (bundles, actually...you usually get 5 or so HBO channels) depend on being differentiated from the rest, one important variable being differentiated pricing, distribution and exclusivity.

Re: How Bundling Benefits Sellers and Buyers

#17

Post by physcab » Sun, Jul 08, 2012, 9:18 PM UTC

Except I hate 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 all this other content". 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.

If all my favorite shows were available on ITunes, I'd kiss cable goodbye in an instant.

Re: How Bundling Benefits Sellers and Buyers

#18

Post by grimtrigger » Sun, Jul 08, 2012, 9:33 PM UTC

casca wrote: post #3

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. 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. The problem with…

I agree that "is of value" doesn't flow from "can be of value".

However, the idea that a company can force you to pay for things with zero value is bunk. If you value ESPN at $10 and History channel at $0, then they should charge you $10 regardless of bundling, because that is the profit maximizing price.

Re: How Bundling Benefits Sellers and Buyers

#19

Post by grimtrigger » Sun, Jul 08, 2012, 9:56 PM UTC

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

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.

Re: How Bundling Benefits Sellers and Buyers

#20

Post by larrys » Sun, Jul 08, 2012, 11:13 PM UTC

dangoldin wrote: post #9

carsongross wrote: post #4

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

Another argument is the negative feeling you get from adding each additional channel. Saying let's pay another $1 for channel X 30 times has a higher negative perception than saying - oh $30 for 30 channels.

True. Same reason if you go to a restaurant and they started charging for the tap water a fee, even a nominal fee, you would have a negative reaction (unless of course all restaurants did that and it for some reason became accepted practice).

People don't want to pay for something that has no value to them but they will accept features that have no value if they feel they are included in a total price of what they are buying (except of course when they can compare products and make a decision not to buy a product because a competitive one is cheaper etc.)