Optimal Bundling Cooperation Strategies for Online Paid Membership Programs

ABSTRACT Paid membership programs are popular in Internet firms, and “bundling cooperation for paid memberships” is trendy in their online operations. Unlike traditional product bundling problems, membership bundling between Internet firms presents new characteristics such as member sharing, which brings challenges to profit allocation and partner selection. Despite being a commonly seen business practice, little is known about the optimal bundling strategies and the cooperation mechanisms regarding firms' membership status. To fill this gap, we develop a stylized model that considers the potential added‐value income of membership to analyze the bundling problem between two firms. We show that the optimal bundling strategy depends on firms' original member bases and their ability to mine member value (i.e., value‐monetization ability). We discuss the allocation policy with Nash bargaining and find that the firm may entirely waive its bundled membership fee income and even compensate its partner to achieve cooperation. Surprisingly, a start‐up partner with no member base may be the optimal option. Nevertheless, if there is no such a partner in the market, forming a bundle with a well‐established partner is the right choice. Our findings provide novel managerial insights into bundled membership operations of Internet firms in practice.