Membership Bundling in Platform Competition: To Bundle Add-Ons Together or Separately?

Platforms are increasingly adopting membership bundling strategies to strengthen competitiveness. This paper explores how duopoly platforms bundle their membership services (the base products) with those provided by other platforms (add-ons) through a game-theoretic lens. We focus on the competing platforms’ strategic decisions to bundle different add-ons together or separately by examining three key determinants: the quality gap between the base products, the quality of versus consumer preference for the add-ons, and the profit-sharing ratio to partners who offer the add-ons. First, with comparable base-good qualities, symmetric bundling emerges in equilibrium. Specifically, simultaneously bundling add-ons together (or separately) dominates when the add-on quality (or the consumers’ preference) mainly drives purchase. Second, significant quality disparity in the base goods leads to asymmetric equilibria: the high-quality platform strategically selects the bundling mode, together or separately, that minimizes the profit-sharing payouts, forcing the low-quality rival to adopt a different strategy. Finally, when the base goods have similar quality, the platform competition can largely yield optimal welfare outcomes. With a significant quality disparity, however, the equilibrium strategies may deviate from social efficiency. Our study advances understanding of platform competition with membership bundling and offers regulatory insights for social planners to strategically intervene in platforms’ membership bundling decisions.