The Law and Economics of Bundled Pricing: LePage’s, PeaceHealth and the Evolving Antitrust Standard

Abstract

The economics of bundled discounts are examined by breaking the contract into two elements: (1) what the firm is buying, and (2) how the firm is paying for what it is buying. The firm is buying preferred distribution, a common aspect of competition for distribution that benefits consumers. The firm is paying for preferred distribution with price discounts on products that have a high price-cost margin, a less costly way to purchase distribution that also benefits consumers. This efficiency in purchasing distribution is the economic basis for the PeaceHealth court’s view that a firm using bundled discounts need not bear any short-term costs that must be recouped. However, anticompetitive effects require substantial foreclosure of distribution, a factor not considered in either LePage’s or PeaceHealth.

JEL Classification: L42, K21