Unbundling Of Industrial Systems

In their paper titled, Unbundling of Industrial System, LYNN O. WILSON, ALLEN M. WEISS, and GEORGE JOHN  talk about unbundling as a decision problem for a firm selling multicomponent system.  Combined with the Strategic Bundling paper I have referred before, the two model criteria for deciding when to unbundle and not.


In Unbundling of Industrial Systems, the authors say

We focus on a firm that currently sells its system only in a bundled form, and ask when it might be more profitable to unbundle the system and possibly even withdraw some of the components.

With a customer base with heterogeneous preferences, they look at bundled system as those offering better integration vs. unbundled systems that offer greater modularity.  This also assumes that there are competitors who can supply the modular components. Then their rule for unbundling is

A simple decision rule is to compare the
per-unit margin of the bundled system with the various
unit margins of the unbundled components; unbundle if
the former is smaller. If the margin rule does not signal
unbundling, an appraisal of the added systems' attributes
in comparison with the focal system's attributes is needed.

The conditions they describe for industrial system apply in general to products and services, of materal and information. But I am not convinced that the decision rule is as simple with information goods and services and even in some material services.
In the case of Newspaper unbundling, the individual articles are the components and the newspaper is the bundle. When the distribution moves to Internet, there exists competitors to supply many of the components. For example,  the news (not commentary, Op-Ed and Opinions) on most events are indistinguishable between major newspapers.  But today there is no market for selling unbundled stories.  Generalizing this, the two conditions that require reconciling are

1. When the components have never been sold separately and hence they have no market and have no published prices but the customers may have a non-zero Reservation Price
2. The marginal cost of the individual components  is close to 0, that is most of the cost is incurred by the integration itself.

Nevertheless the work done by Wilson et al covers significant ground. My work is to add these conditions and refine the decision rule for unbundling.