Antitrust Analysis Of Bundled Discounts

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Slide 1

Antitrust Analysis of
Bundled Di

Thomas A. Lambert
University of Missouri Law School

Slide 2


  • Why are bundled discounts troubling?
  • Summary and critique of leading evaluative approaches
  • An alternative proposal

Slide 3

The Problem:
Exclusion of an Equally Efficient, Exclusion of an Equally Efficient,
But Less Diversified, Rival

Mfr. A
Mfr. B
  Shampoo Conditioner Shampoo
Variable Cost
Separate Price
Package Price
$5.00 ($1 > AVC)
No package avail. Shampoo price must be

Slide 4

Per Se Legality

  • Legal if discounted price of bundle exceeds aggregate cost of products within the bundle.
  • Critique:
    • 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.

Slide 5

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.

Slide 6

The LePage’s 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).
  • Critique:
    • Price umbrella for less efficient rivals.
    • Will chill bundling, which has many pro-comp. benefits.

Slide 7

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.

Slide 8

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.

Slide 9

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?

Slide 10

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.
  • So:
    • Complaining rival must have exhausted competitive options.
    • Complaining rival must have ability to match efficiency.
    • Foreclosed market must be capable of monopolization.

Slide 11

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.

Slide 12

Goals Met?

  • 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.
Updated June 25, 2015

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