Bundling Donations to Charity with Product Purchases: A Business Incentives Model

Abstract

This paper focuses on developing a business model that explains why certain companies would bundle their products with donations to charity. The model assumes that consumers are individuals that maximize their utility subject to their income and companies are agents that maximize their profts subject to prices and costs. The type of firm that we will focus on will be the monopoly. We will investigate the different situations where a monopoly might choose to engage in charity-linked product bundling and look at several factors that may lead to their decision to do so. These factors include: small vs. large prices, homogeneous vs. heterogeneous populations, and strong vs. weak consumer preferences for charitable donations. In the end, the model shows when a why a firm would choose to market a charity-linked product, even when it is the firm who pays for the entire price of the donation.