Predatory Bundling and the Exclusionary Standard

53 Pages Posted: 7 Mar 2009 Last revised: 4 Mar 2011

Shahar Dillbary

University of Alabama School of Law

Date Written: March 6, 2009

Abstract

Recent decisions - all relying on a stylized example first provided by the Ortho court - hold that a multi-product seller that uses a bundled discount in a way that excludes an equally or more efficient competitor engages in predatory bundling. According to these decisions, a bundle can be considered predatory even when the price of the bundle exceeds its cost. The article offers evidence demonstrating that the Ortho's stylized example and its monopoly leveraging theory are erroneous. The article further shows that even when a bundle's price excludes more efficient competitors and even when a component in the bundle is priced below cost, and thus sold at a loss, it may still have welfare enhancing effects. The result is that bundles that fail the discount allocation test and even bundles that fail the Brooke Group test may still be desirable. The article provides a number of examples from the airline and telecommunication industries to illustrate that both exclusionary and below cost bundles can be not only welfare enhancing, but also very common.

Keywords: Predatory Bundling, Bundled Discount, Package Discount, Predatory Pricing, Exclusionary Behavior, Antitrust, Industrial Organization

JEL Classification: K21, L12, L41, L42

Suggested Citation

Dillbary, Shahar, Predatory Bundling and the Exclusionary Standard (March 6, 2009). Washington and Lee Law Review, Vol. 67, No. 1231, 2010; U of Alabama Public Law Research Paper No. 1354863. Available at SSRN: https://ssrn.com/abstract=1354863

Shahar John Dillbary (Contact Author)

University of Alabama School of Law ( email )

P.O. Box 870382
Tuscaloosa, AL 35487
United States

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