Mixed Bundling, Profit Sacrifice, and Consumer Welfare
63 Pages Posted: 28 Oct 2005
Mixed bundling - the conditioning of discounts in one market on the purchase of products or services in another market - is a pervasive business practice that is attracting attention because of its potentially exclusionary effects on competitors. The practice has been analogized to anticompetitive tying and, as with tying a generation ago, the reasons for its existence have been misunderstood. In most cases, mixed bundling benefits consumers. Firms adopt mixed bundling pricing strategies for many procompetitive or competitively neutral or indeterminate reasons, including achieving efficiencies, responding to demand by powerful customers, price-discriminating, and playing behavioral games with customer psychology. Courts and the antitrust agencies are struggling to formulate legal tests capable of addressing mixed bundling as a potential monopolization offense. The prominent sacrifice test - under which an act is considered unlawfully exclusionary if it makes no rational sense absent the exclusion of competitors - cannot be meaningfully applied to most mixed bundling schemes in a litigation context because there are too many variables that determine the "rationality" calculus. But nor do theories of exclusionary bundling without profit sacrifice provide a compelling reason to be worried about the competitive effects of mixed bundling in most cases. Given the generally procompetitive effects of mixed bundling and the propensity of plaintiffs strategically to misuse monopolization law to stymie vigorous price competition, courts should be reluctant to create new prohibitory rules and should, at most, use existing predatory pricing principles to assess the practice.
Keywords: antitrust, tie-in sales
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