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Journal of Competition Law and Economics Advance Access published online on April 19, 2008
Journal of Competition Law and Economics, doi:10.1093/joclec/nhn013
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© The Author (2008). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

BUNDLES OF JOY: THE UBIQUITY AND EFFICIENCY OF BUNDLES IN NEW TECHNOLOGY MARKETS

Stan J. Liebowitz * and Stephen E. Margolis **

This paper examines the economic logic underlying bundles and tie-in sales and uses the lessons learned from that examination to analyze seven specific instances of bundling that have been the subject of antitrust scrutiny or other policy initiatives. Of particular interest are products that are nonrivalrous in consumption, making all-you-can-eat pricing a viable candidate for efficiency. The main economic points are the following: À-la-carte pricing may populate economic models, but most products are bundles. They are bundles because bundles are generally more efficient. Tie-in sales are much less common and often not properly understood in textbook discussions. Market foreclosure, the principal efficiency concern with tying and bundling, is likely to be exceedingly rare. The seven instances of bundling (ties) examined in the paper are: cable television; patent pools; blanket licenses; iPods and iTunes; telephones; music albums and songs; operating systems and component programs.

* Ashbel Smith Professor of Economics, University of Texas at Dallas. E-mail: leibowit@utdallas.edu.

** Professor of Economics, North Carolina State University College of Management. E-mail: steve_margolis@ncsu.edu. The authors would like to acknowledge helpful comments from Bruce Kobayashi, Christopher Yoo, and the participants at Searle Center Roundtable on the Law and Economics of Innovation at Northwestern University and the George Mason University Law School/Microsoft Annual Conference on Regulation of Innovation.


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