Political parties are product bundles

2016-03-26 2 min read

    I rarely write about politics but it’s an election year and I had an interesting realization. Political parties are just like product bundles. We each have our own issues and policies we’re passionate about but it’s impossible to find a politician, less a party, that has the same views we do. Instead we have political parties that take a few issues and policies and try to wrap them up in a bundle hoping to appeal to enough people to win an election.

    Reading the Wikipedia article for product bundling makes it obvious how closely it fits political parties. From Wikipedia:

    Bundling is most successful when:
    • There are economies of scale in production.
    • There are economies of scope in distribution.
    • Marginal costs of bundling are low.
    • Production set-up costs are high.
    • Customer acquisition costs are high.
    • Consumers appreciate the resulting simplification of the purchase decision and benefit from the joint performance of the combined product.
    • Consumers have heterogeneous demands and such demands for different parts of the bundle product are inversely correlated. For example, assume consumer A values word processor at $100 and spreadsheet processor at $60, while consumer B values word processor at $60 and spreadsheet at $100. Seller can generate maximum revenue of only $240 by setting $60 price for each product—both consumers will buy both products. Revenue cannot be increased without bundling because as seller increases the price above $60 for one of the goods, one of the consumers will refuse to buy it. With bundling, seller can generate revenue of $320 by bundling the products together and selling the bundle at $160.

    Each of these is a perfect fit for politics. There are huge economies of scale and distribution for political parties. They’re purely information so there’s no marginal cost and the brunt of the cost is in the formation of a party which is incredibly difficult due to the massive network effects and infrastructure required. People have diverse beliefs with great variance on the most important issues and don’t have the depth to know every issue.

    It’s no wonder that political parties are so entrenched but this also provides insights on how to dismantle these bundles. We need to examine history and see how previous bundles have been broken down and see whether those solutions can apply to our political system.