Bundle-Pricing Decision Model for Multiple Products

Abstract

Bundling is an efficient method to achieve business objectives in many industries. However decisions of bundle selection and pricing are complicated when multiple products are involved. In this paper, we investigate a bundle-pricing decision model for multiple products. With the objective to maximize the retailer's profit, an integrated bundle-pricing model for multiple commodities is formulated as a Non-Linear Mixed Integer Program based on the framework of Stackelberg game. By adding auxiliary decision variables, this model is converted into a Mixed Integer Linear Program and solved by Cplex. Numerical experiments and sensitive analysis are conducted to provide managerial insights for bundling multiple products. It indicates that low consumption level consumers prefer bundles composed of more commodities with lower prices. The products with higher cost level should be bundled with smaller bundle size and higher prices.