Bundling as Exclusionary Pricing to Maintain Monopoly

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Jonathan Rubin, Jun 10, 2008

A controversy in antitrust policy is raging over two principal and competing approaches to liability rules for bundling. Under the rule adopted by the U.S. Court of Appeals for the Third Circuit, the appropriate legal standard for liability for bundling is based on well-settled, general principles of monopolization law. Under the LePage’s decision, bundling may be deemed unlawful exclusionary conduct under the general rule in Aspen Skiing, where the U.S. Supreme Court defined anticompetitive conduct as behavior that impairs the opportunities of rivals through conduct that either does not constitute competition on the merits or achieves a competitive benefit in an unnecessarily restrictive way. The other approach to liability rules applies before the U.S. Court of Appeals for the Ninth Circuit and was recommended by the Antitrust Modernization Commission (AMC). This approach requires as an essential element of liability some form of below-cost pricing. Under the AMC’s “cost-based” test, for example, a firm violates Section 2 if the fully discounted price of the product facing competition—attributing any discounts given on other products to the price of the product facing competition falls below the cost of its production by a hypothetical equally efficient rival. The presumption is that a cost-based rule provides a sensible proxy for determining when an equally efficient rival…

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