Tying and bundling
What is tying and bundling?
Tying and bundling is a form of anti-competitive abuse of dominance contrary to section 5 of the Competition Act 2002, as amended, and Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).
Tying occurs where a dominant undertaking which supplies one product (the "tying product") requires the buyer, as a condition of obtaining or realistically using that product, to also buy a second product (the "tied product"). While the tying product may be available on its own, the tied product is not available without the tying product.
Bundling occurs where dominant undertaking offers and prices two different products as a single package. There are two common types of bundling:
- Pure bundling: this is where the two products are only sold together and are not available on a standalone basis; and
- Mixed bundling: this is where the products are available separately but the price for these products on their own is higher than when they are bought together.
Tying and pure bundling are very similar behaviours as, in both cases, customers have no choice but to purchase both products if they want to realistically use or obtain the main product. This is known as “coercion”. They are therefore analysed under broadly the same legal tests. The key difference between tying and pure bundling is that, in the case of tying, the tied product is available on a standalone basis. In the case of pure bundling, none of the components are available on a standalone basis.
Mixed bundling, however, is analysed slightly differently as it does not concern coercion but rather a practice known as inducement. For instance, each product may individually cost €5, but when bought as a bundle they cost €8.
Why can tying and bundling by a dominant undertaking be considered anti-competitive?
Tying and bundling are common practices throughout the economy and can often provide customers with better value or more features. However, where a dominant undertaking uses these practices to harm its competitors, it may be breaching competition law.
Tying, in particular, can be found to breach competition law where it allows a dominant undertaking to exploit (or leverage) the dominance it enjoys in the market of the tying product to deny customers the choice to buy the tying product without the tied product. This can restrict competition in the tied product market and may even protect dominance in the market for the tying product.
For example, a company sells nailguns that customers can buy on their own. However, the company requires customers who buy its nailguns to also purchase the company’s own branded nails, even though compatible nails are available from other suppliers. This can harm competition in the market for nails as rival suppliers are prevented from competing for the business of customers using that nailgun.
Mixed bundling can harm competition where it limits customer choice or makes it harder for competitors selling individual products to compete effectively. In particular, mixed bundling may raise competition concerns where the bundled pricing makes it uneconomic for equally efficient competitors that supply only one component to compete, even if those competitors offer that component at a competitive price.
The use of tying or bundling by a dominant undertaking does not automatically breach competition law. These practices may be justified where they result in efficiencies, cost savings, or other benefits for customers that outweigh any potential harm to competition.
Coercion and exclusionary effects
A lack of customer choice generally requires that customers are coerced into acquiring the tied product by the dominant firm. Coercion can be as simple as a contract term requiring that the customer buys the tied product. Alternatively, coercion can occur where the dominant company will not offer the tying product without the tied product. This can be done by physically or technically integrating the products with one another or where the quality or usability of the tying product is reduced without the tied product.
Exclusionary effects refer to whether or not the actions of tying and bundling are considered by the CCPC to be excluding competitors from the market. Several factors are considered in this analysis, including but not limited to the duration of the tying and bundling, the presence of barriers to entry and expansion or network effects as well as the significance of the link between the tying and tied product. The CCPC will assess the level of harm being experienced in the tying market, the tied market, as well as both markets together.
Conditions under which tying may be abusive
Tying may distort competition where the undertaking has a dominant position in relation to the tying product and where:
- The tying and tied products are two separate products
- The undertaking concerned does not give customers the choice to obtain the tying product without the tied product;
- The tying conduct is capable of having exclusionary effects; and
- There are no objective justifications for the practice.
Does selling a product with a range of features always constitute tying or bundling?
No. Both products must be considered to be distinct. Determining whether both products are distinct can involve looking at whether there is separate customer demand for the tied product, i.e. if it were not sold with the tying product would enough people want to buy it. Where a component is an integral part of a single product and is not something customers normally purchase on its own, supplying it together does not amount to tying.
The dominant undertaking can justify its use of tying or bundling if the practice is objectively necessary to carry out business or the efficiency gains outweigh any negative effects and consumers benefit from the practice. It is up to the dominant firm to raise such a defence.
If you believe you have evidence of a company engaging in tying or bundling, you can contact the CCPC.
