...
Followers of Chicago School disagree with the possible results of the leverage effect (R.A. Posner: Antitrust Law: An Economic Perspective, 1976 et al.). Their main argument is that monopoly profits can only be realized in one market and monopoly power itself not transferred to another market. Overall profits will not exceed the overall monopolist profits of one market and, therefore, companies which tie and bundle products have no incentive to tie and bundle but for efficiency reasons.This argument of the Chicago School is based on strict assumptions (monopolist is able to capture the entire willingness to pay of consumers, goods are consumed in fixed proportions, perfect competition in secondary market) which are not applicable for most existing markets.On the other hand, followers of the more recent Industrial Organization Theory argue that leverage effects are possible and might – under certain conditions – even lead to market foreclosure. Whinston shows that in imperfect markets product bundling is useful, if the monopolistic company fails a perfect price discrimination of the consumers in the monopolistic market. The monopolistic company may transfer its market power from the monopolistic market to the secondary competitive market of the bundled product and raise prices. As Whinston points out, the company is able to raise its overall profits at the cost of a decreased overall welfare and to squeeze competitors via an aggressive pricing strategy out of the secondary market.Bundling deters potential competitors from entering the market because potential competitors would have to enter the monopolistic market first and afterwards the competitive secondary market as well. As a result, bundling might lead to a market foreclosure and high barriers to entry.
Modern economic literature rejects a per se legality or illegality approach of certain bundling or tying strategies. Instead a rule of reason approach with balancing of positive efficiency effects and negative anticompetitive effects is favoured.
C. Legal conditions and parameters
For tying and bundling to be considered abusive, from the case-law, the Discussion Paper and the Commission’s Guidancewe can conclude that for tying or bundling to be abusive, the following conditions must be fulfilled:
the tying and tied products are distinct products;
the tying practice is likely to lead to anti-competitive foreclosure;
there is no objective justification for the tying or bundling.
In its Microsoft decision, the Commission also added lack of customer choice/coercion as a condition. This can arise from the unavailability of the products separately, from pressure exerted on the customers through the promise of favorable treatment, or from pricing incentives which may be so powerful as to convince any customer to buy the bundle instead of separate products.However, in the Commission’s guidance released after the Microsoft case well as in previous case-law, no mention of such a requirement is ever made. Logically, such coercion or lack of choice may be seen instrumental in the foreclosure effect that tying and/or bundling create.
I. Dominance
The first condition for exclusionary effects to arise requires dominance in the tying market. It is not necessary that the company also is dominant in the tied market. However, dominance also in the tied market renders the finding of an abuse more likely. In order to assess this properly it is normally necessary to define the relevant market(s) on which both the tying and the tied product are sold.The concept of a dominant position has no legal definition, but it has been established in a long string of CJEU judgments. The ECJ has defined dominance in terms of an undertaking’s ‘economic strenght’ and its ability to act independently on the market. According to settled case law, dominance is a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers.
Subsequent judgments and decisions have helped to give a clearer delineation of the concept. A dominant position does not preclude some competition, which it does where there is a monopoly or a quasi-monopoly, but enables the undertaking which profits by it, if not to determine, at least to have an appreciable influence on the conditions under which that competition will develop, and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment.In the Commission's Guidance the Commission considers that an undertaking which is capable of profitably increasing prices above the competitive level for a significant period of time does not face sufficiently effective competitive constraints and can thus generally be regarded as dominant.
The notion of independence is related to the level of competitive constraint facing the undertaking(s) in question. For dominance to exist the undertaking(s) concerned must have substantial market power.
In this analysis important is in particular the market position of the allegedly dominant undertaking, the market position of competitors, barriers to expansion and entry, and the market position of buyers.
If an undertaking holds a high market share, it could be indicative of market power which could mean that existence of a dominant position. In Tetra Pak 2the General Court found that a market share of 90 percent was in itself evidence of a dominant position. The Commission's experience suggests that dominance is not likely if the undertaking's market share is below 40 % in the relevant market.However, in Klim the CJEU held that the undertaking’s market shares of 36 and 32 percent were compatible with it being in a dominant Position.Irrelevant of the market shares it holds, a firm can be considered as not being in a dominant position if expansion or entry is likely, timely and sufficient.
Moreover, as we have previously stated, dominance implies the possibility of acting independently of your customers. Countervailing buyer power might lead to the finding of lack of dominance, for example, where the buying side is highly concentrated (few buyers with high shares).
For tying and bundling to be considered abusive, from the case-law, the Discussion Paper
...
However, in the Commission’s guidance released after the Microsoft case well as in previous case-law, no mention of such a requirement is ever made. Logically, such coercion or lack of choice may be seen instrumental in the foreclosure effect that tying and/or bundling create.
I. Dominance
The first condition for exclusionary effects to arise requires dominance in the tying market. It is not necessary that the company also is dominant in the tied market. However, dominance also in the tied market renders the finding of an abuse more likely. In order to assess this properly it is normally necessary to define the relevant market(s) on which both the tying and the tied product are sold.
...
