ANTITRUST AND BUNDLED DISCOUNTS: AN EXPERIMENTAL ANALYSIS

• Published in: Antitrust law journal Vol. 75; no. 2; pp. 399 - 432
• Main Authors: Muris, Timothy J., Smith, Vernon L.
• Format: Journal Article
• Language: English
• Published: Chicago American Bar Association 01-01-2008
• Subjects: Antitrust; Antitrust law; Bottled water; Bundling; Bundling (Marketing); Consumer economics; Consumer prices; Consumer surplus; Consumers; Cost control; Decision making; Design; Discounts; Discounts (Sales); Economic competition; Evaluation; Evidence; Exclusive dealing agreements; Experiments; Federal court decisions; Fringe; Laws, regulations and rules; Market entry; Market strategy; Monopoly; Predatory pricing; Prices; Pricing policies; Profits; United States > US
• ISSN: 0003-6056; 2326-9774

Bundling -- the sale of two or more distinct goods as a package -- is a diverse, ubiquitous, and generally procompetitive pricing practice. One of the primary uses of bundling is to offer consumers more attractive packages of goods, resulting in lower costs to the seller, lower prices to the consumer, and greater output. In this article, the authors argue that the most serious shortcoming of the economic literature on exclusionary bundling is this absence of empirical analyses evaluating how firms actually use bundled discounts. In this article, they describe experiments performed by a research team at the Interdisciplinary Center for Economic Sciences at George Mason University on the issue of bundling by a dominant firm. The experimental results lend no support to the critics of bundling. Even in a controlled setting that incorporates the critical assumptions of the theoretical models that predict the existence of anticompetitive harm, bundling generally increases both total and consumer welfare.