Transactions Bundling in Monopsonistic Markets; Theory and Numerical Implications

We show that for a price-setting monopsony, offering a mixed bundle in the transactions in goods of uncertain quality is profit enhancing and, contrary to conventional wisdom, is trade enhancing. The magnitude of the improvement in expected profits (volume of trade) relative to no bundling is greater the smaller (larger) the gap in the degree of quality uncertainty between the two goods. Also importantly, but on a smaller scale, if the degree of quality uncertainty between the two goods is equal, the expected profits (volume of trade) improvement is an increasing (decreasing) function of this common degree.