The Perfect Storm for a BBQ: Economics of the Combo Meal

My friend Dan twittered the other day about an interesting bundle on amazon.com if you purchased the book the Perfect Storm you could get the BBQ Bible along with it for a discount. Amazon does this with every book making an offer of an additional book at a discounted, although usually the two books are generally closer in themes.

So why bundle goods? A simple example with the Perfect Storm and the BBQ Bible (the numbers aren’t meant to be exact). Suppose people like Dan would pay $20 for the BBQ Bible and $5 for the Perfect Storm. Now suppose people like me would pay $20 for the Perfect Storm and $5 for the BBQ Bible. If Amazon sells either book for $20 they will sell only one of each copy and collect $40. If they sell each book for $5 we each buy both books and Amazon collects $20. But if Amazon offers us both books together for $25 we buy the bundle and Amazon gets $50. As long as it costs Amazon less than $5 to get a copy of either book they make more money selling books in bundles.

This is the same reason when you go to McDonalds you can order a combo meal. How much each of us is willing to pay for burgers, fries, and cokes varies. But, McDonalds can get us to buy more if they offer it as a bundle.

However, we can’t bundle everything or every purchase would be like late night TV and come with a set of steak knives. Typically bundles are for similar goods like books and combo meals.

But, Dan was confused by this bundle, since they were both books but they share little in common.

I think I found the explanation. In some Amazon listing the DVD is listed as The Perfect Storm (with BBQ Book) (see here). That probably made the Amazon computers bundle the books. Although the listing does make sense.

Batteries not included?

My father, who is also is an economics prof, pointed out the other day I made an error in describing externalities. In cases like TV commercials or pop-ads, these are bundled goods. Externalities are when someone not involved in the transaction is impacted, but the person watching the ads decided to watch TV or visit the website so they get the ads and the content.

Often bundled goods are obvious (a combo meal, free sugar/cream with coffee, a set of matching gloves and scarf). But, I was wondering the age old question “why are batteries not included?” in something that needs batteries. I was thinking this as I went to purchase a printer cable for my new printer. If I need a cable to use the printer (I think?), why not sell me a cable too. I was surprised Dell, where I bought the printer, did not even offer me one.

I think it is not included, because Dell wants to make the printer seem cheaper than it is (the cable cost about ½ the price of the printer). Dell has been taken to task in the UK, for this false advertising on this issue (link). However, “Dell argued that it does not supply cables as standard with printers on the assumption that many customers would have one already.”