Bundling Books

The book publishing industry is going through some significant changes with the introduction of e-book reading devices and e-books. In an effort to satisfy customers that prefer the traditional method of reading a book and customers that prefer to read a book on an electronic reader some sellers are bundling both together.

As I show in class, pure bundling works as a revenue (and profit) increasing product strategy when the reservation prices between the two goods are negatively correlated. If this is the case, then pure bundling can increase the firms revenue and profits. The question remains as to whether printed books and electronic book reservation prices are negatively correlated. At first glance, I would think not, but I am not so sure now.