Anticompetitive Bundling Strategies
13 January 2003
By Greg Houston, Jennifer Fish, and Carol Osborne et al.
The Australian Competition and Consumer Commission (ACCC) has noted that there is a global trend towards bundling in the telecommunications market. Bundling has the potential to provide net public benefits, but it could also be used to foreclose competition and therefore be anticompetitive. With this in mind, the ACCC retained NERA to consider possible anticompetitive effects that may arise from the bundling of telecommunications services. The ACCC is particularly interested in a firm's use of bundling strategies to reduce competitors' addressable market in the situation where those competitors are unable to supply one of the products within the bundle. This report discusses approaches for identifying whether bundling strategies constitute anticompetitive behavior.
The authors outline the two ways an integrated carrier could use bundling to reduce rivals' sales: by setting prices such that consumers are encouraged to purchase the bundle rather than individual products, or by providing the product for which it has market power only within the bundled package, thus "capturing" sales of the product for which the carrier faces competition (tying). The authors propose that determining whether a tie-in constitutes anticompetitive behavior requires an assessment of the tradeoffs between any benefits resulting from increased competitive pressures and any detriment resulting from a reduction in rivalry in the market. They note that determining whether a tying arrangement could be considered to have the purpose, effect or likely effect of substantially lessening competition will most likely require detailed consideration of the impacts, both beneficial and detrimental, in the context of the relevant market(s). The authors conclude that, in this respect, it is neither feasible nor desirable to develop analytical rules, such as the imputation tests, for assessing tying arrangements.
This report was prepared in conjunction with Imputation Tests for Bundled Services, which examines the applicability of various imputation tests and how these might be applied to assess whether a vertically integrated firm's pricing practices, including in relation to bundling, could constitute anticompetitive behavior.
Based on NERA's findings, on 13 January 2003 the ACCC issued a draft information paper on the bundling of services in the telecommunications industry. The paper lays out the approach the ACCC is likely to follow when assessing whether bundling conduct in the telecommunications industry is anticompetitive. This analysis would involve consideration of the level of discounts and relative importance for bundling in relevant markets.
The ACCC's information paper can be accessed on the ACCC website using the link below.
