Antitrust Analysis of
Thomas A. Lambert
University of Missouri Law School
- Why are bundled discounts troubling?
- Summary and critique of leading evaluative approaches
- An alternative proposal
Exclusion of an Equally Efficient, Exclusion of an Equally Efficient,
But Less Diversified, Rival
$5.00 ($1 > AVC)
No package avail. Shampoo price must be
Per Se Legality
- Legal if discounted price of bundle exceeds aggregate cost of products within the bundle.
- May be the best approach in the long run, but
- The search may be worth the cost.
- Easy to imagine a/c exclusion
- Administrable "weeding device" is available.
Raising Rivals Costs (Unjustifiably)
- Discounts illegal if they unjustifiably usurp so much business from rivals that their so much business from rivals that their costs are raised.
- Critique: How determine what's "unjustifiable"?
- Case by case? Chilling effect.
- Elhauge approach?
- Prevents price-cutting by monopolist at MES,
- Tough to administer.
- Chilling effect.
The LePages Approach
- Bundled discount is presumptively exclusionary if discounter is bundling products not sold by rivals and is winning business from those rivals.
- Discounter may rebut presumption if it proves a "business reasons justification" (must show that bundling saves costs approaching amount discount).
- Price umbrella for less efficient rivals.
- Will chill bundling, which has many pro-comp. benefits.
The Ortho Diagnostic Approach
- Bundled discount illegal if plaintiff shows either:
- that bundle is priced below AVC, or
- that plaintiff is at least as efficient a producer of competitive product but cannot match discount without pricing below cost on that product.
- Critique: Overly difficult to administer b/c plaintiff must prove its and defendant's costs, where there are joint costs.
The "Original" Antitrust Law Approach
- Illegal if the bundled discount would exclude a hypothetical equally efficient single-product rival, without adequate business justification.
- Critique: Easier to administer, but...
- Prevents discount cross-subsidization (e.g., Seller's cost of A, B, and C is $4 each, sells them separately for $5 each, sells bundle for $13.50).
- No requirement that foreclosed market be capable of monopolization.
The "Revised" Antitrust Law Approach
- Analogize to tying: There's a tie-in if the price is below cost when entire discount is attributed to competitive product. BUT not if another "significant rival" sells all products.
- After finding "tying/' apply ROR.
- Critique: Why involve tying at all?
An Alternative Proposal: Goals
- Condemn bundled discounts that could eliminate competitive rivals and result in price increases.
- Do not condemn others
- Be easy to administer.
- Complaining rival must have exhausted competitive options.
- Complaining rival must have ability to match efficiency.
- Foreclosed market must be capable of monopolization.
An Alternative Proposal: Rule
- Above-cost discount is per se legal unless plaintiff could not match without pricing below cost and:
- (1) Barriers to entry exist in (a) product mkt in which plaintiff doesn't participate, and (b)
- (2) Collaborative bundle impracticable.
- (3) Good faith supply offer rejected.
- Defendant may rebut by showing that supply offer was not attractive.
- Complainant exhausted competitive options?
- Showings 1(a), 2, and 3 establish.
- Complainant capable of equal efficiency?
- Defendant's failed rebuttal oppty establishes
- Mkt. capable of monopolization?
- Showing 1(b) establishes.