Contributions

Buyers Beware: Lower Prices Can be Harmful to Consumers

by Megan Hare1

Bundling2 is an effec­tive sales strat­e­gy with a pro­found effect on con­sumer wel­fare. Buy­ers gen­er­al­ly ben­e­fit from bundling because they have the option to pur­chase more goods for low­er costs.3 Sell­ers are attract­ed to bundling because it reduces trans­ac­tion costs and increas­es con­sump­tion of prod­ucts beyond their indi­vid­ual demand.4 Bun­dled dis­counts there­fore should pre­sump­tive­ly be procompetitive—that is, bundling is among the pric­ing schemes that the antitrust doc­trine aims to pro­mote.

How­ev­er, bundling can reduce con­sumer wel­fare in the long run when firms inten­tion­al­ly price their bun­dles to elim­i­nate com­pe­ti­tion.5 In this respect, firms use bun­dled dis­counts not to com­pete in the rel­e­vant mar­kets, but to exclude equal­ly or more effi­cient com­peti­tors from those mar­kets. The clas­sic exam­ple of this poten­tial­ly “anti­com­pet­i­tive” behav­ior involves a firm hav­ing a monop­oly on a prod­uct and pair­ing it with a sec­ond non-monop­oly prod­uct in a bun­dle.6 While the afore­men­tioned bun­dled dis­count might appear to be a straight­for­ward vio­la­tion of the Sher­man Antitrust Act, the cur­rent cir­cuit split between the Third Cir­cuit and the Sixth and Ninth Cir­cuits7 reflects a grave ambi­gu­i­ty about what con­sti­tutes an unlaw­ful anti­com­pet­i­tive bun­dle. The judiciary’s min­i­mal expe­ri­ence with bun­dled dis­counts and how bundling affects con­sumer wel­fare thus cre­ates a dan­ger­ous uncer­tain­ty in U.S. mar­kets, ulti­mate­ly leav­ing firms with­out any clear guid­ance on how to avoid antitrust lia­bil­i­ty. The legal uncer­tain­ty regard­ing bun­dled dis­counts in turn neg­a­tive­ly impacts the ben­e­fits flow­ing to con­sumers from dis­count­ed prices while per­mit­ting anti­com­pet­i­tive behav­ior that is harm­ful to con­sumers to escape reg­u­la­tion.8

This Con­tri­bu­tion will argue first that mar­ket fore­clo­sure9 should be the pri­ma­ry con­sid­er­a­tion for iden­ti­fy­ing anti­com­pet­i­tive bundling. Sec­ond, courts should be sus­pi­cious of bun­dled dis­counts that link monop­oly and non-monop­oly prod­ucts when those bun­dles are offered by dom­i­nate firms, for these dis­counts fre­quent­ly exclude com­pe­ti­tion and harm con­sumers in the long run.10

* * * * *

Sec­tion 2 of the Sher­man Antitrust Act (“Sher­man Act”) seeks to pre­vent firms from destroy­ing com­pe­ti­tion, and con­se­quent­ly from harm­ing con­sumers, through exer­tion of monop­oly pow­er in a giv­en mar­ket.11 Specif­i­cal­ly, § 2 makes it unlaw­ful for a firm to “monop­o­lize, or attempt to monop­o­lize, … any part of the trade or com­merce among the sev­er­al [s]tates, or with for­eign nations.”12 A firm’s pos­ses­sion of monop­oly pow­er com­bined with its will­ful wield­ing of such pow­er by engag­ing in anti­com­pet­i­tive con­duct pos­es an unlaw­ful threat to com­pe­ti­tion.13 In short, a monop­o­list engag­ing in exclu­sion­ary or anti­com­pet­i­tive con­duct with­out a valid busi­ness jus­ti­fi­ca­tion vio­lates § 2 of the Sher­man Act.14

Anti­com­pet­i­tive con­duct impairs the oppor­tu­ni­ties of rival firms and either does not fur­ther com­pe­ti­tion on the mer­its or does so in an unnec­es­sar­i­ly restric­tive way.15 Bun­dled dis­counts, while poten­tial­ly pro­com­pet­i­tive, may be anti­com­pet­i­tive where they exclude less diver­si­fied but equal­ly effi­cient sell­ers. For exam­ple, severe­ly dis­count­ed bun­dled prod­ucts may exclude a com­peti­tor who sells only a sin­gle prod­uct in a bun­dle (and who pro­duces that sin­gle prod­uct at a low­er cost than the bun­dled dis­counter).16 Such a com­peti­tor is ulti­mate­ly exclud­ed from the mar­ket because the com­peti­tor is unable to match prof­itably the price cre­at­ed by the mul­ti-prod­uct bun­dled dis­count.17 Accord­ing­ly, it would be incon­sis­tent with § 2 of the Sher­man Act to uphold any bun­dled dis­counts that sub­stan­tial­ly fore­close por­tions of the mar­ket to com­peti­tors who can­not make com­pa­ra­ble offers because of a dom­i­nant firm’s con­duct.

The thresh­old issue for courts, then, is to dis­tin­guish pro­com­pet­i­tive bun­dled dis­counts from bun­dled dis­counts, offered by firms hold­ing or on the verge of acquir­ing monop­oly pow­er, that harm com­pe­ti­tion. With no direct guid­ance from the Supreme Court, the cir­cuit courts are split on the appro­pri­ate stan­dard to use for deter­min­ing when bun­dled dis­counts are anti­com­pet­i­tive. The Ninth and Sixth Cir­cuits apply a dis­count attri­bu­tion test, while the Third Cir­cuit adopt­ed an exclu­sion­ary effects test.18 Not sur­pris­ing­ly, both stan­dards have been wide­ly crit­i­cized for fail­ing to dis­cern reli­ably the anti­com­pet­i­tive effect of bun­dled dis­counts on con­sumer wel­fare.19

Under the Ninth Circuit’s dis­count attri­bu­tion stan­dard, a bun­dled dis­count is exclu­sion­ary under § 2 if the result­ing price of the com­pet­i­tive prod­uct, after the full amount of the dis­count has been allo­cat­ed to the prod­uct, is below the firm’s incre­men­tal costs to pro­duce it.20 By requir­ing the com­pet­i­tive prod­uct to be priced below-cost, the court sought to ensure that the only bun­dled dis­counts con­demned as anti­com­pet­i­tive were those that exclud­ed equal­ly effi­cient pro­duc­ers of the com­pet­i­tive prod­uct.21 Thus, the Ninth Cir­cuit held that bun­dled dis­counts priced below-cost will be deemed anti­com­pet­i­tive in vio­la­tion of § 2.22

 

Whether the Ninth Cir­cuit will con­tin­ue using the dis­count attri­bu­tion stan­dard it set forth in Cas­cade Health is yet to be deter­mined. Although recent Ninth Cir­cuit deci­sions have declined to apply the dis­count attri­bu­tion stan­dard, the Sixth Cir­cuit affirmed the use of the Cas­cade Health dis­count attri­bu­tion test. In Collins Inkjet Corp. v. East­man Kodak Co., the Sixth Cir­cuit con­clud­ed that the dis­count attri­bu­tion stan­dard is appro­pri­ate for “ties enforced pure­ly through dif­fer­en­tial pric­ing,” not­ing that the Ninth Circuit’s analy­sis was more com­pelling than the Third Circuit’s exclu­sion­ary effects test.24

 

The Third Circuit’s exclu­sion­ary effects test, set forth in LePage’s Inc. v. 3M, is the lead­ing alter­na­tive to the cost-based analy­sis uti­lized by the Ninth and Sixth Cir­cuits.25 In LePage’s, the Third Cir­cuit held that a bun­dled dis­count could be anti­com­pet­i­tive even though the bun­dle reduced prices for con­sumers (thus increas­ing con­sumer wel­fare) and even though equal­ly effi­cient com­peti­tors were capa­ble of match­ing the bun­dled price.26 In oth­er words, even where post-dis­count prices are above a firm’s costs, the firm may still threat­en com­pe­ti­tion by dri­ving com­peti­tors out of the mar­ket using its cur­rent monop­oly pow­er. For instance, “a firm that enjoys a [dom­i­nant] monop­oly” pow­er in one mar­ket, “but which faces com­pe­ti­tion” in anoth­er mar­ket, might unlaw­ful­ly exclude com­peti­tors, even if it prices all of its prod­ucts above cost.27

How­ev­er, the LePage’s deci­sion has been chal­lenged in part because the court did not eval­u­ate whether a bun­dled dis­count was pro­com­pet­i­tive, but sim­ply declared that it was unlaw­ful­ly anti­com­pet­i­tive for a monop­o­list to offer bun­dles with a broad­er prod­uct line than its com­peti­tors.28 Despite the wide­spread com­ments and crit­i­cism, the deci­sion ini­ti­at­ed a debate over the prop­er stan­dard that should be used to deter­mine monop­o­liza­tion in the bun­dled dis­count con­text, giv­en that the anti­com­pet­i­tive effect result­ing from bun­dles resem­bles both price pre­da­tion and exclu­sion­ary con­duct.29

Clear­ly, courts are strug­gling to iden­ti­fy the appro­pri­ate stan­dard to apply when eval­u­at­ing the anti­com­pet­i­tive effect of bun­dled dis­counts.30 The lack of con­sen­sus on the stan­dard required for bundling, along with the Supreme Court’s deci­sion to deny cer­tio­rari on the issue, makes this com­mon com­mer­cial prac­tice one of ques­tion­able legal­i­ty, and that in turn harms both busi­ness­es and con­sumers.

* * * * *

At first glance, the anti­com­pet­i­tive effect of bun­dled dis­counts may be dif­fi­cult to dis­cern. Bundling allows con­sumers to “get more for less,” which undoubt­ed­ly ben­e­fits con­sumers.32 Con­sumers ben­e­fit when com­peti­tors offer dis­counts through bundling because the com­pe­ti­tion among rivals cre­ates a race-to-the-bot­tom effect on mar­ket prices.33 To be sure, antitrust laws aim to pro­tect price-cut­ting dis­counts pre­cise­ly because com­pe­ti­tion encour­ages low­er mar­ket prices.34 So how can low­er prices ever harm con­sumers?

Low­er­ing prices can harm con­sumer wel­fare by stymieing com­pe­ti­tion and elim­i­nat­ing com­peti­tors from the mar­ket.35 Com­pe­ti­tion in cap­i­tal­is­tic mar­kets oper­ates on the assump­tion that firms will max­i­mize resource effi­cien­cies in order to increase their prof­its.36 How­ev­er, firms offer­ing severe­ly dis­count­ed bun­dles tem­porar­i­ly dis­re­gard cap­i­tal­is­tic prin­ci­ples to gain addi­tion­al mar­ket share or to main­tain exist­ing mar­ket pow­er.37 The firm is essen­tial­ly “trad[ing] a part of its monop­oly prof­its, at least tem­porar­i­ly, for a larg­er mar­ket share, by mak­ing it unprof­itable for oth­er sell­ers to com­pete with it.”38 Once the firm achieves mar­ket fore­clo­sure, it can then increase the price of its prod­ucts to the point at which it can guar­an­tee prof­it max­i­miza­tion.39 Of course, this price is invari­ably high­er than the price deter­mined in a com­pet­i­tive mar­ket.40 Con­sumer wel­fare there­fore suf­fers in the long run when buy­ers must pay the high­er prices con­trolled by the dom­i­nant firm.

The anti­com­pet­i­tive effect is even more sub­stan­tial when a bun­dled dis­count links monop­oly and non-monop­oly prod­ucts. Con­sid­er the fol­low­ing exam­ple:

Com­peti­tor 1 pro­duces a monop­oly prod­uct, A, and anoth­er non-monop­oly prod­uct, B. Com­peti­tor 2 pro­duces anoth­er ver­sion of prod­uct B, but at a low­er aver­age vari­able cost than Com­peti­tor 1. Com­peti­tor 2 there­fore is the more effi­cient pro­duc­er of prod­uct B. But, with the bun­dled pric­ing, Com­peti­tor 1 links the price paid for A to the pur­chase of B. If the stand-alone price of A (the monop­oly prod­uct) is inflat­ed, then the non-monop­oly prod­uct, B, will give the false appear­ance of being a bar­gain when bun­dled with A. Com­peti­tor 2 will be forced to low­er its price enough to com­pen­sate buy­ers for lost dis­counts on the monop­oly prod­uct. This may force Com­peti­tor 2 to price below-cost, which may even­tu­al­ly exclude Com­peti­tor 2 from the mar­ket. Thus, a dom­i­nant firm can manip­u­late A’s price so that B appears to be cheap­er.41

 

By bundling its monop­oly and non-monop­oly prod­ucts, the dom­i­nant firm intends not only to main­tain its monop­oly pow­er in prod­uct A’s mar­ket, but also to gain mar­ket share in prod­uct B’s mar­ket. The firm’s eco­nom­ic pow­er there­fore cre­ates antitrust lia­bil­i­ty in this sce­nario, regard­less of whether the dom­i­nant firm prices the bun­dle above or below-cost.

Courts should be skep­ti­cal of dom­i­nant firms link­ing monop­oly and non-monop­oly prod­ucts in bun­dles. Despite pro­vid­ing con­sumers with low­er prices today, the poten­tial threat to com­pe­ti­tion in the future is too risky—that is, dom­i­nant firms offer­ing these bun­dles are not sim­ply fur­ther­ing their cur­rent eco­nom­ic inter­ests (i.e. increased prof­its, low­er trans­ac­tion costs, cap­i­tal­iza­tion of economies of scale), but are attempt­ing to thwart future com­pe­ti­tion by con­trol­ling prices with­in the mar­ket.42 Con­se­quent­ly, courts should con­demn these bun­dles as anti­com­pet­i­tive to the extent that equal­ly effi­cient com­peti­tors of the non-monop­oly prod­uct are exclud­ed from the mar­ket.

The courts’ strug­gle to ascer­tain which bun­dles are anti­com­pet­i­tive stems from the dif­fi­cul­ty involved in pre­dict­ing a bun­dled discount’s future harm to con­sumers. Both the Ninth Circuit’s dis­count attri­bu­tion test and the Third Circuit’s exclu­sion­ary effects test attempt to cal­cu­late a bundle’s future threat to con­sumer wel­fare.43 The Ninth Cir­cuit uses a cost-based analy­sis to iden­ti­fy unlaw­ful anti­com­pet­i­tive con­duct, rec­og­niz­ing that firms oper­at­ing below-cost are moti­vat­ed not by con­sumer ben­e­fit and prof­it max­i­miza­tion, but by mar­ket pow­er.44 Although focus­ing on the diver­si­fi­ca­tion of the firm’s prod­uct mar­kets, the Third Cir­cuit sim­i­lar­ly acknowl­edged the threat to com­pe­ti­tion and con­sumers when firms dri­ve com­peti­tors out of the mar­ket using their cur­rent monop­oly pow­er.45 Despite apply­ing dif­fer­ent stan­dards, both cir­cuits artic­u­lat­ed the future threat to con­sumers in terms of the respec­tive bun­dled discount’s poten­tial to fore­close por­tions of the relat­ed mar­ket.46 Con­cen­trat­ing on mar­ket fore­clo­sure thus allows courts to reg­u­late anti­com­pet­i­tive pric­ing schemes with­out dis­cour­ag­ing legit­i­mate price com­pe­ti­tion.

 

Notably, antitrust laws pro­tect com­pe­ti­tion and con­sumers, not com­peti­tors.47 But the exclu­sion of com­peti­tors result­ing from anti­com­pet­i­tive bun­dles inevitably harms con­sumers in the long run. Accord­ing­ly, any viable stan­dard for dis­tin­guish­ing between pro­com­pet­i­tive and anti­com­pet­i­tive bun­dled dis­counts must afford great weight to a bun­dled discounter’s abil­i­ty to fore­close sub­stan­tial por­tions of the mar­ket to less diver­si­fied but equal­ly effi­cient com­peti­tors.

* * * * *

The law on bun­dled dis­counts is a “mov­ing tar­get in every juris­dic­tion.”48 There is an urgent need to under­stand more ful­ly the eco­nom­ic effects of bundling on con­sumer wel­fare. That under­stand­ing will allow courts the expe­ri­ence they need to “divine the preva­lence and com­pet­i­tive effects of bun­dled dis­counts”[49] and make firm judg­ments about the pres­ence of exclu­sion­ary ver­sus pro­com­pet­i­tive con­duct in a giv­en mar­ket. At min­i­mum, courts can there­fore bet­ter ensure that legit­i­mate price com­pe­ti­tion will not be pro­hib­it­ed under over­broad lia­bil­i­ty stan­dards, or, con­verse­ly, that anti­com­pet­i­tive behav­ior harm­ing con­sumers will not escape reg­u­la­tion.

 

The Third and Ninth Cir­cuits have pro­vid­ed some guid­ance for deter­min­ing when bun­dles are anti­com­pet­i­tive. How­ev­er, whether these cir­cuits will con­tin­ue to apply the stan­dards they adopt­ed in LePage’s and Cas­cade Health, respec­tive­ly, remains unclear. What is clear from the cur­rent law is both courts’ empha­sis on mar­ket fore­clo­sure in deter­min­ing the exclu­sion­ary effect of bun­dled dis­counts.51 Accord­ing­ly, plain­tiffs chal­leng­ing price-cut­ting bun­dled dis­counts as anti­com­pet­i­tive con­duct in vio­la­tion of § 2 of the Sher­man Act should be required to prove that those bun­dles will exclude equal­ly effi­cient com­peti­tors from the mar­ket. Oth­er­wise the court risks enjoin­ing pro­com­pet­i­tive dis­counts, even those offered by dom­i­nant firms, that encour­age com­pe­ti­tion on the mer­its, and thus increase con­sumer wel­fare.

Notes:

1. Megan Hare is a 3L at New York Uni­ver­si­ty School of Law. This Con­tri­bu­tion is a com­men­tary on one of the ques­tions pre­sent­ed dur­ing the 2017 Glob­al Antitrust Insti­tute Moot Court Com­pe­ti­tion in Wash­ing­ton, D.C. The ques­tion addressed whether a cloud-based tech­nol­o­gy firm’s bun­dled dis­count for cloud com­put­ing and email ser­vices was anti­com­pet­i­tive in vio­la­tion of § 2 of the Sher­man Act. The views expressed in this Con­tri­bu­tion do not nec­es­sar­i­ly rep­re­sent the views of the author on this point of law, but serve as a dis­til­la­tion of the author’s argu­ment as pre­sent­ed dur­ing the GAI Moot Court Com­pe­ti­tion. For anoth­er com­men­tary from this com­pe­ti­tion, see Grow­ing Pains in EU Antitrust Enforce­ment by Jonathan Het­tle­man.
2. Bundling is the prac­tice of sell­ing two or more prod­ucts togeth­er (the “bun­dle”) at a low­er price than the sell­er charges for the prod­ucts sold sep­a­rate­ly. See Cas­cade Health Sols. v. Peace­health, 515 F.3d 883, 894 (9th Cir. 2008).
3. See id. at 895.
4See Phillip E. Aree­da & Her­bert Hov­enkamp, Antitrust Law: An Analy­sis of Antitrust Prin­ci­ples and Their Appli­ca­tion 343 (3d ed. 2008) (not­ing that bundling serves a num­ber of pro­com­pet­i­tive pur­pos­es, includ­ing achieve­ment of economies of scale, qual­i­ty con­trol, and reduc­tion of trans­ac­tion costs); see also Tim­o­thy J. Muris & Ver­non L. Smith, Antitrust and Bun­dled Dis­counts: An Exper­i­men­tal Analy­sis, 75 Antitrust L.J. 399, 404 (2008).
5. See Cas­cade Health, 515 F.3d at 896; see also Richard A. Pos­ner, Antitrust Law 236 (2d ed. 2001).
6. See Ortho Diag­nos­tic Sys., Inc. v. Abbott Labs., Inc., 920 F. Supp. 455, 467 (S.D.N.Y. 1996).
7Com­pare LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003), with Collins Inkjet Corp. v. East­man Kodak Co., 781 F.3d 264 (6th Cir. 2015), and Cas­cade Health v. Peace­health, 515 F.3d 883 (9th Cir. 2008).
8. See David S. Sib­ley, Matthew D. Sib­ley, & Melanie Stallings Williams, Tying and Bun­dled Dis­counts: An Equi­lib­ri­um Analy­sis of Antitrust Lia­bil­i­ty Tests, 13 Berke­ley Bus. L.J. 149, 151 (2016) (not­ing that the “lack of judi­cial clar­i­ty regard­ing bun­dled dis­counts mat­ters because legal uncer­tain­ty has its own cost[:] firms may be reluc­tant to pro­vide bun­dled dis­count plans that ben­e­fit their cus­tomers”).
9. Mar­ket fore­clo­sure is a form of exclu­sion­ary con­duct where a dom­i­nant firm acts as an aggres­sor and expands its mar­ket share at the expense of small­er rival firms. See Frank H. East­er­brook, When Is It Worth­while to Use Courts to Search for Exclu­sion­ary Con­duct?, 2003 Colum. Bus. L. Rev. 345, 345 (2003). Hav­ing lost their mar­ket shares to the dom­i­nant firm, rival firms either become exclud­ed from the rel­e­vant mar­ket or attempt to regain mar­ket share by seek­ing injunc­tive relief from the courts. Id.
10. Because com­pet­i­tive and exclu­sion­ary con­duct look alike, and because courts must deter­mine whether a firm’s aggres­sive con­duct today will be fol­lowed by monop­oly tomor­row, courts have wide­ly adopt­ed a wait-and-see approach (i.e. wait to see if monop­o­lis­tic prices hap­pen lat­er and deal with it then) for resolv­ing exclu­sion­ary-prac­tice claims. See East­er­brook, supra note 9, at 346 n.2. This Con­tri­bu­tion, how­ev­er, urges courts to grant injunc­tive relief soon­er for bun­dled dis­counts offered by dom­i­nate firms that group a prod­uct over which the firm has sub­stan­tial mar­ket pow­er with a prod­uct that faces more robust com­pe­ti­tion. As this Con­tri­bu­tion will demon­strate, dom­i­nant firms may eas­i­ly employ bun­dled dis­counts anti-com­pet­i­tive­ly where the bun­dled prod­ucts are insu­lat­ed with high bar­ri­ers to entry and where the bun­dled prod­ucts expe­ri­ence extreme­ly low mar­gin­al costs. See Bradley Poli­na, False Neg­a­tives Under a Dis­count Attri­bu­tion Test for Bun­dled Dis­counts, 22 Comm­Law Con­spec­tus 74, 75 (2014). Such aggres­sive, exclu­sion­ary con­duct war­rants judi­cial inter­ven­tion before the dom­i­nant firm con­trols mar­ket prices and excludes rival com­peti­tors from the mar­ket.
11See Spec­trum Sports, Inc. v. McQuil­lan, 506 U.S. 447, 458 (1993) (“The pur­pose of the [Sher­man] Act is not to pro­tect busi­ness­es from the work­ing of the mar­ket; it is to pro­tect the pub­lic from the fail­ure of the mar­ket. The law directs itself … against con­duct which unfair­ly tends to destroy com­pe­ti­tion itself.”).
12. 15 U.S.C. § 2.
13. See Unit­ed States v. Grin­nell Corp., 384 U.S. 563, 570–71 (1966) (describ­ing the two ele­ments of monop­o­liza­tion as “(1) the pos­ses­sion of monop­oly pow­er in the rel­e­vant mar­ket and (2) the will­ful acqui­si­tion or main­te­nance of that pow­er as dis­tin­guished from growth or devel­op­ment as a con­se­quence of a supe­ri­or prod­uct, busi­ness acu­men, or his­toric acci­dent.”).
14See LePage’s Inc. v. 3M, 324 F.3d 141, 152 (3d Cir. 2003).
15. See Aspen Ski­ing Co. v. Aspen High­lands Ski­ing Corp., 472 U.S. 585, 605 n.32 (1985).
16. See Ortho, 920 F. Supp. at 467.
17. Id.
18. Com­pare Cas­cade Health v. Peace­health, 515 F.3d 883, 906 (9th Cir. 2008) (“[A]s our cost-based rule, we adopt what ami­ci refer to as a ‘dis­count attri­bu­tion’ stan­dard.”), and Collins Inkjet Corp. v. East­man Kodak Co., 781 F.3d 264, 274 (6th Cir. 2015) (“The dis­count attri­bu­tion stan­dard thus pro­vides the test for deter­min­ing whether a plain­tiff chal­leng­ing a competitor’s tie that is enforced through dif­fer­en­tial pric­ing has antitrust stand­ing”), with LePage’s Inc. v. 3M, 324 F.3d 141, 162 (3d Cir. 2003) (“The rel­e­vant inquiry is the anti­com­pet­i­tive effect of 3M’s exclu­sion­ary prac­tices con­sid­ered togeth­er.”).
19. For crit­i­cism of the Third Circuit’s exclu­sion­ary effects test, see Sib­ley et. al., supra note 8, at 156; Antitrust Mod­ern­iza­tion Comm’n, Report and Rec­om­men­da­tions 97 (2007), http://govinfo.library.unt.edu/amc/report_recommendation/amc_final_report.pdf. For crit­i­cism of the Ninth Circuit’s dis­count attri­bu­tion test, see Poli­na, supra note 10, at 102–07.
20. See Cas­cade Health, 515 F.3d at 906.
21. Id. at 909.
22. Id. at 903.
23. See Mei­jer, Inc. v. Abbott Labs., 544 F. Supp. 2d 995, 1002-03 (N.D. Cal. 2008) (“Even if Kale­tra rep­re­sents a bun­dled dis­count such that these cas­es fall with­in the gen­er­al purview of Cas­cade, it does not fol­low that the Court must mechan­i­cal­ly apply the Cas­cade rule regard­less of its effect under the cir­cum­stances.”); Aerotec Int’l, Inc. v. Hon­ey­well Int’l, Inc., 4 F. Supp. 3d 1123, 1141 (D. Ariz. 2014) (“While the court finds Honeywell’s argu­ments against the appli­ca­tion of the dis­count attri­bu­tion test per­sua­sive, it need not make a deter­mi­na­tion about whether the test should actu­al­ly apply.”).
24. Collins Inkjet Corp. v. East­man Kodak Co., 781 F.3d 264, 273–74 (6th Cir. 2015).
25. See gen­er­al­ly Cas­cade Health, 515 F.3d 895, and East­man Kodak, 781 F.3d 264; see also Sib­ley et. al., supra note 8, at 158 (not­ing that the lead­ing approach­es for deter­min­ing when bun­dled dis­counts are anti­com­pet­i­tive are the Third Circuit’s exclu­sion­ary effects test and the Ninth Circuit’s dis­count attri­bu­tion test); Poli­na, supra note 10, at 77 (describ­ing the “two dom­i­nant schools of thought in antitrust bundling” as the Third Circuit’s deci­sion in LePage’s and the Ninth Circuit’s deci­sion in Cas­cade Health).
26. See LePage’s Inc. v. 3M, 324 F.3d 141, 154, 156 (3d Cir. 2003); see also Daniel L. Rubin­feld, 3M’s Bun­dled Rebates: An Eco­nom­ic Per­spec­tive, 72 U. Chica­go L. Rev. 243, 249–50 (2005).
27. See Ortho Diag­nos­tic Sys., Inc. v. Abbott Labs., Inc., 920 F. Supp. 455, 467 (S.D.N.Y. 1996).
28. See, e.g., Antitrust Mod­ern­iza­tion Comm’n, supra note 18, at 97; Rubin­feld, supra note 19, at 250.
29. Jonathan B. Bak­er, Pre­serv­ing a Polit­i­cal Bar­gain: The Polit­i­cal Econ­o­my of the Non-Inter­ven­tion­ist Chal­lenge to Monop­o­liza­tion Enforce­ment, 76 Antitrust L.J. 605, 614–15 (2010) (“The deci­sion in LePage’s set off a legal con­tro­ver­sy over monop­o­liza­tion stan­dards because exclu­sion aris­ing from bun­dled rebates or dis­counts resem­bles both price pre­da­tion and exclu­sion­ary con­duct.”).
30. See, e.g., Cas­cade Health, 515 F.3d at 903–08 (not­ing the com­plex­i­ty involved with defin­ing an appro­pri­ate cost stan­dard in bun­dled dis­count cas­es and sum­ma­riz­ing the alter­na­tive cost-based stan­dards reject­ed by the Ninth Cir­cuit before it adopt­ed the “dis­count attri­bu­tion” stan­dard); Sib­ley et. al., supra note 8, at 158; Thomas A. Lam­bert, Eval­u­at­ing Bun­dled Dis­counts, 89 Minn. L. Rev. 1688, 1699–1700 (2005) (out­lin­ing five pos­si­ble approach­es that courts could use in eval­u­at­ing bun­dled dis­counts); see also Poli­na, supra note 10, at 77 (“Courts have endeav­ored to fash­ion method­olo­gies that can appro­pri­ate­ly [solve] [the] ‘puz­zle of exclu­sion­ary con­duct.’” (cit­ing East­er­brook, supra note 9, at 345)).
31. See LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003), cert. denied, 72 U.S.L.W. 3777 (U.S. June 30, 2004) (No. 02–1865). The Depart­ment of Jus­tice and the Fed­er­al Trade Com­mis­sion also argued against the Supreme Court’s grant­i­ng cer­tio­rari, urg­ing the Court to wait until the case law and eco­nom­ic analy­ses regard­ing bun­dled dis­counts were more devel­oped. See Brief for the Unit­ed States as Ami­cus Curi­ae at 19, 3M Co. v. LePage’s Inc., 542 U.S. 953 (2004) (No. 02–1865) (“[A]lthough the busi­ness com­mu­ni­ty and con­sumers would ben­e­fit from clear, objec­tive guid­ance on the appli­ca­tion of Sec­tion 2 to bun­dled rebates, this case does not present an attrac­tive vehi­cle for this Court to attempt to pro­vide such guid­ance.”).
32. Cas­cade Health Solu­tions v. Peace­health, 515 F.3d 883, 895 (9th Cir. 2008).
33. See id.; Lam­bert, supra note 30, at 1726 (sug­gest­ing that bun­dled dis­counts always pro­vide some imme­di­ate con­sumer ben­e­fit in the form of low­er prices).
34. See Mat­shushi­ta Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 594 (1986) (“[C]utting prices in order to increase busi­ness often is the very essence of com­pe­ti­tion.”).
35. See Cas­cade Health, 515 F.3d at 896; see also Richard A. Pos­ner, Antitrust Law 236 (2d ed. 2001); Bar­ry Nale­buff, Exclu­sion­ary Bundling, 50 Antitrust Bull. 321, 321 (2005).
36. See, e.g., The Com­pact Oxford Eng­lish Dic­tio­nary 497 (2d ed. 1991) (“Cap­i­tal­ists have an inter­est in eco­nom­ic effi­cien­cy, min­i­miz­ing their fac­tor (labor, cap­i­tal, mate­ri­als) costs per unit out­put, because this increas­es their prof­its.”).
37. See Poli­na, supra note 10, at 75–76, 83 (“[I]ncumbents may use lim­it-pric­ing strate­gies by effec­tive­ly drop­ping the price on the com­pet­i­tive prod­uct [in the bun­dle] down to mar­gin­al cost – which is often near zero in many indus­tries – to under­mine new entry by sig­nal­ing the unprof­itabil­i­ty of enter­ing the com­pet­i­tive prod­uct mar­ket.… Bundling may also be used by dom­i­nant firms to pro­tect or main­tain a monop­oly, or to extend monop­oly pow­er into com­pet­i­tive mar­kets.”).
38. Richard A. Pos­ner, Antitrust Law: An Eco­nom­ic Per­spec­tive 28 (1976).
39. See LePage’s Inc. v. 3M, 324 F.3d 141, 164 (3d Cir. 2003).
40. Id.
41. Sib­ley et. al., supra note 8, at 154–55.
42. The advance­ment of eco­nom­ic inter­ests here rep­re­sents law­ful pro­com­pet­i­tive con­duct by a dom­i­nant firm while the lat­ter attempt to fore­close com­pe­ti­tion through mar­ket price con­trol qual­i­fies as unlaw­ful exclu­sion­ary con­duct.
43. See gen­er­al­ly Cas­cade Health Solu­tions v. Peace­health, 515 F.3d 883 (9th Cir. 2008); LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003).
44. See Cas­cade Health, 515 F.3d at 909.
45. See LePage’s, 324 F.3d at 155.
46. See Cas­cade Health, 515 F.3d at 908 (“[T]he pri­ma­ry anti­com­pet­i­tive dan­ger posed by a mul­ti-prod­uct bun­dled dis­count is that such a dis­count can exclude a rival who is equal­ly effi­cient at pro­duc­ing the com­pet­i­tive prod­uct”); LePage’s, 324 F.3d at 155 (“The prin­ci­pal anti­com­pet­i­tive effect of bun­dled rebates as offered by 3M is that when offered by a monop­o­list they may fore­close por­tions of the mar­ket to a poten­tial com­peti­tor”).
47. See Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 488 (1977) (“The antitrust laws … were enact­ed for the pro­tec­tion of com­pe­ti­tion” (inter­nal quo­ta­tion marks omit­ted)).
48. Richard M. Steuer, Bundling Beyond Bor­ders, 24-Sum Antitrust 40, 44 (2010).
49. Cas­cade Health, 515 F.3d at 908.
50. See id. at 895 n.5.
51. See id. at 909; LePage’s, 324 F.3d at 155.