BUNDLE DESIGN AND PRICING: THEORY AND APPLICATIONS

Abstract

Product bundling is an important selling strategy for multiproduct firms. In this thesis, we study the bundle design and pricing problems. We first propose a convex optimization framework to solve the bundle size pricing problem, where a monopolist sells bundles of products to customers, and the price of each bundle depends only on the size (number of items) of the bundle. We then show that the model primitives of the convex optimization framework can be estimated via solving a conic program, and we derive the closed-form gradient formula of the profit function. This allows us to solve the dynamic fare family pricing problem in airline revenue management. Finally, we study how to use a single bundle to enhance the menu of separate products, and develop new approximations and efficient algorithms for solving the joint bundle design and pricing optimization problem.