False Negatives under a Discount Attribution Test for Bundled Discounts

Abstract

Consumers love to pay less and get more. But are better deals at the retail point of sale always welfare-enhancing? This question points to the puzzle of bundling and bundled discounts. The antitrust concerns raised by a recent set of agreements in the telecommunications sector, allowing for the sale of a four part "quad play" bundle, provide a good opportunity to re-examine contemporary bundling analysis under the antitrust laws. There are several reasons to conclude that the four-part bundle set to be sold by Verizon Wireless, in partnership with several cable companies, will have anticompetitive effects. The purpose of this paper is to point out the ways in which the quad play could be used as an exclusionary device while still passing muster under the Ninth Circuit's discount attribution test, which requires a showing of below cost pricing when the full amount of discounts given on the bundle are allocated to the product facing competition.

Keywords: antitrust, bundling, mixed bundling, quad play, telecommunications, Verizon, discount attribution, below cost pricing, wireless, mobile, telephone, Ninth Circuit, Third Circuit, Lepage's, Cascade, Brooke Group