Bundles of Joy: The Ubiquity and Efficiency of Bundles in New Technology Markets

Competition Policy and Antitrust

Article Snapshot


Stan Liebowitz and Stephen E Margolis


Journal of Competition Law and Economics Vol. 5, Issue 1, pp. 1-47, 2009


This paper considers the economics and law of tie-in sales and bundling, with particular attention to innovation.

Policy Relevance

Markets affected by innovation will involve invention, creative works, and new ways of producing or delivering goods. It is important to understand that bundling is a natural and competitive phenomenon in these markets and not an outgrowth of anticompetitive behavior.

Main Points

  • Recent articles have pointed out that bundling occurs in some obviously competitive industries. We suggest that bundling doesn’t just sometimes occur under some competitive conditions but is pervasive in the economy and is the dominant form of sales, for reasons that have to do with efficiencies of a simple and obvious nature.
    • A la carte pricing may dominate economic models, but most real world products are bundles. Similarly, textbook discussions of tie-in sales are incomplete and market foreclosure, the principal efficiency concern with tying and bundling, is likely to be exceedingly rare.

  • The conditions required for tying or bundling to create monopoly power for reasons other than product improvement are so restrictive that such episodes are likely to be a vanishingly small fraction of all tie-ins or bundles. Of course, most bundles do have the potential to foreclose sales the way that houses with kitchens, by way of example, will reduce the demand for restaurants. But most bundling has nothing to do with monopoly power.

  • Tying and bundling should not be per se illegal in antitrust law; instead, all cases should require a demonstration of a high likelihood of actual exclusion and the absence of an efficiency defense. Equivalently, policies that implement mandatory unbundling should be reconsidered or abandoned.
    • While regulators’ antagonism to bundling is widely noted, we will also observe that in important cases, regulators or would-be regulators proposing to ‘unbundle’ have actually been hostile to full unbundling, although the nature of the bundling is often hidden in these cases.

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