Two Tales of Bundling: Implications for the Application of Antitrust Law to Bundled Discounts

Competition Policy and Antitrust

Article Snapshot

Author(s)

Bruce Kobayashi

Source

Antitrust Policy and Vertical Restraints, Robert Hahn, ed., AEI-Brookings, 2006, pp. 10-37

Summary

The author argues that law cannot correctly analyze the practice of bundling until economists model it better.

Policy Relevance

The bundling of products has grown in recent years and often raises monopoly and antitrust concerns. The courts cannot address these concerns without making errors until bundling’s anticompetitive behavior is correctly modeled by economists.

Main Points

  • Bundling is now ubiquitous. Its popularity has risen because of the competitive advantages it can provide in lowering costs for producers, which then benefits consumers in the form of lower prices.
     
  • A negative side to the bundling phenomenon is that it can be used by firms in some industries to monopolize. It thus raises concerns regarding the Sherman Antitrust Act.
     
  • Lots of the literature on bundling by multi-product monopolists has focused on the price discrimination aspect. This has resulted from a sort of path dependence in the economic literature.
     
  • Recent literature about price bundling has focused more on its use as an exclusionary device. This has revealed that exclusion can occur at prices above costs and that exclusions can either increase or decrease consumer total welfare.
     
  • Most of the modeling of bundling results in an incomplete picture because the models are too simple. All the models tend to contain restrictive assumptions, which simplify real world realities.
     
  • The need for more complex models means that courts at the moment must use models that contain errors in allowing anticompetitive conduct, or errors that result in banning efficient conduct.
     
  • Improving complex models to more accurately reflect the impact of bundling while still being cost-effective will help economists understand bundling effects in the monopoly context. It will also help courts develop a workable standard relating to bundling.
     

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