The Competitive Effects of Bundled Discounts

In 2004, the US Supreme Court denied certiorari in LePage's, Inc. v. 3M. The decision ended a hotly contested litigation, but it fueled the controversy and debate over the competitive effects of bundled rebates and discounts. The Supreme Court's decision followed the recommendations of the US Federal Trade Commission and Department of Justice, which urged the Court to defera review of the issues and await academic commentary and further developments in the case law. As stated in the amicus brief filed by the two agencies, “the court of appeals was unclear as to what aspect of bundled rebates constituted exclusionary conduct, and neither it nor other courts have definitively resolved what legal principles and economic analyses should control.” This chapter explains the economic principles behind bundled rebate programs. It also describes the conditions under which bundling can be either pro- or anticompetitive and the empirical approach that can be taken to assess the competitive effects in the short and long term. An assessment of the long-term effects would test whether the bundled pricing program might have led to the exclusion of an efficient rival. An analysis of the short-term effects would test for price increases and focus on traditional measures of consumer welfare. However, it is possible for bundled pricing to benefit consumers in the short run, but harm competition in the long run. Under these circumstances, the analysis must consider and weigh the short-term benefits against the risk of long-term harm