Keywords: competition, packaged discount, wholesale

Tying and Bundling

What is tying?

Tying is the sale of one product conditional upon the purchase of another.

At a wholesale level, tying occurs if a supplier agrees to sell one product to a distributor on condition that the distributor purchases all of its requirements of a separate product from the supplier.

What is bundling?

Bundling is the sale of two products as a packaged discount. The buyer is typically free to purchase one product separately, but at a higher price.

At a wholesale level, bundling occurs when a supplier offers a discount to a distributor for purchasing its requirements of two separate products together.

What problems can arise from tying and bundling?

Tying and bundling are, more often than not, beneficial to consumers. Selling related products together may result in costs savings from packaging and marketing, which may be passed on to the consumer. Both the seller and buyer may benefit from reduced search, information and transaction costs, and increased product range.

Concerns may arise when a business with substantial market power uses tying and bundling as means to leverage its market power from the market in which it has substantial market power (the dominant market) into a related market in which it does not have market power (the secondary market).

By tying or bundling the secondary market to the dominant market, a business with substantial market power may be able to harm competing suppliers by reducing the number of willing buyers available in the secondary market. As a result, competing suppliers in the secondary market may become less effective or even exit the market, potentially leading to higher prices for consumers.

Limited-duration tying or bundling, such as to promote the introduction of a new product or to clear inventory or damaged goods, is unlikely to cause anti-competitive effects.

Next Week

Next week we will take a look at exclusive dealing by businesses possessing a substantial degree of market power.

Originally published 8 July 2015

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