The Bundling Strategy: The One-Click Effect on Loss Aversion

Abstract

This research aims to determine different levels of loss aversion in the context of price responsiveness and service bundling. Considering that nonlinearities in price responses may exist in a bundling strategy, this research tests the existence of different degrees of loss aversion, depending on whether an individual books one service independently of another (e.g., an airline ticket independently of accommodation) or as part of a bundle (e.g., a package that includes an airline ticket plus accommodation). We estimate a random parameter logit model. Empirical application shows that people who book a flight independently of accommodation are more loss averse than those who book a package that includes flight and accommodation. To explain this result, we propose the one-click effect so that people who find a price higher than expected (loss aversion) are more willing to accept it if the product is included in a bundle.