Working Paper No. 05-35:
Does Economics Provide a Reliable Guide to Regulating Commodity Bundling by Firms? A Survey of the Economic Literature

Author(s):

Bruce Kobayashi

Date Posted: 2005

Availability:
Abstract (below) | Full text (most recent) on SSRN

Abstract:

This article surveys the voluminous economic literature on commodity bundling. While bundling has been widely studied, the vast majority of the papers are theoretical models of bundling. These models generally contain restrictive assumptions regarding the existence of monopoly in some markets, and the nature of rivalry in others. The models also generally ignore obvious and ubiquitous reasons firms may use bundled discounts. Moreover, these models have not been subject to robustness checks, nor have their assumptions been tested empirically.

As a result, while the literature has demonstrated that use of bundling can generate anticompetitive harm, it does not provide a reliable way to gauge whether the potential for harm would outweigh any demonstrable benefits from the practice. Thus, this review of the economic literature generally confirms the SG's position in 3M v. LePage"s regarding the underdeveloped state of the economics literature and the wisdom of delaying the promulgation of antitrust standards for bundling. In the future, economists should seek to expand their understanding of both the anticompetitive and procompetitive reasons firms engage in bundling. This will entail studying the reasons bundling is adopted by firms without market power, relaxing the assumption of monopoly in theoretical models, and generating testable hypothesis and the data to test them.