Pricing of multi-product bundles to match supply and demand

In this paper we provide a framework to price bundles that contain multiple products in a way to match supply and demand, more specifically we extend the framework developed by Schlamensee (1984) who considers the case of a bundle that contains two products. In Schmalensee (1984) the correlation structure among reservation prices (maximum price that a customer pays to acquire a product) for the two products within each consumer is analyzed by assuming that buyer's reservation price pairs follow a bivariate normal distribution. We extend this two-product bundle framework into a multi-product bundle case by modeling the reservation prices within each consumer follow a multivariate normal distribution. We then analyze the implications of using multivariate normal distribution on several pricing aspects of the bundle and finally develop rules to price the bundle in order to match supply and demand, rather than the standard objectives such as profit maximization or cost minimization.