5 - Bundled Discounts and PeaceHealth

Summary

A bundled discount exists when a firm offers a lower price on a bundle of goods or services relative to the individual prices of the goods or services. Suppose that a multiproduct firm offers its customers a 5 percent discount on its list prices if the customer buys all of its requirements of latex gloves and surgical masks from the firm. If the customer buys any of the products from a second source, the discount falls to, say, 3 percent. The discounts are said to be “bundled” because the discount earned on gloves depends on the purchases of gloves and masks rather than just the purchases of gloves. In some instances, this apparently procompetitive discount schedule can foreclose an equally efficient producer of, say, surgical masks. In this event, the bundled discount schedule raises antitrust concerns. However, formulating an economically sensible antitrust policy is not easy. In this chapter, we review relevant antitrust cases including PeaceHealth and discuss remedies for bundled discounts.