Abstract: Economists and antitrust practitioners have long raised regulatory concerns regarding abuses of market power through the bundling of products in the telecommunications and broadcasting industry. Anticompetitive issues may further arise if market-dominant operators frame bundle discounts as the “free” offer of a product (i.e., zero-price marketing)—a topic that remains relatively underexplored in the literature. Given the consumer behavior literature regarding free offers in the bundle context, however, it still remains unclear whether market-dominant operators’ zero pricing can reinforce or weaken the anticompetitive effect. Hence, we built a theoretical model of product bundling with different levels of market competition and empirically test whether consumers prefer zero-priced bundles over similarly priced groupings of products with a conjoint experiment. Consistent with strategic foreclosure theory, we found that a market-dominant mobile network operator can significantly raise its share in the pay-TV market by exploiting zero-price marketing. More importantly, consumers who are economically at risk appear to be vulnerable to such zero-price marketing. On top of anticompetitive effects, bundles often have hidden costs incurred by multiyear contractual arrangements and thereby also have potential lock-in effects. Therefore, consumers’ vulnerability to such free offers may call attention to regulatory measures against zero-pricing marketing for bundles.

Bio: Minki Kim is an Associate Professor of Marketing at KAIST College of Business. He holds a PhD and an MA in Economics from the University of Chicago and a BA in Economics from Seoul National University. Having been trained as an empirical IO economist with a keen interest in developing quantitative marketing methods, he has research interests in big data analytics, innovation (e.g., mobile technologies, AI-mediated communication), and its strategic use in the market. His research has appeared in publications such as Journal of Marketing Research, Journal of Consumer Research, Quantitative Marketing & Economics, and International Journal of Research in Marketing.