International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

On the Practice of Bundling a Free Gift with a Threshold Purchase
Michael Bar, Kirill Chernomaz, Diego Escobari

This article explores the practice of bundling a free unit of good y (drink) with a threshold purchase of good x (food). Allowing for heterogeneity in consumer drink preferences we characterize the conditions under which the practice is strictly more profitable than linear pricing. An increase in food sales is the source of higher profits. Chosen issues reduce profitable opportunities in a heterogeneous population of consumers relative to a homogeneous population. In some cases, an increase in profit from using the practice can be higher when consumers would not otherwise buy the drink. The practice can be Pareto-improving if the seller has limited control over prices.

Full Text: PDF