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 we will take a look at exclusive dealing by businesses possessing a substantial degree of market power.
Originally published 8 July 2015
Visit us at www.mayerbrownjsm.com
Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.
© Copyright 2015. The Mayer Brown Practices. All rights reserved.
This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.