A Journal for Western Man



Does the Tying and Bundling

of Products

Harm Consumers?

Molinari Economic Institute

(Institut Economique Molinari)

Issue LIV- April 4, 2006





The European Commission is at war with Microsoft. The European executive reproaches the computer giant for not yielding to its obligation to open up the key protocols of its servers thanks to adequate documentation. With the bundling in its Windows operating system of a multimedia player, this was the principal objection which led to the ruling on the company in March 2004 concerning Microsoft's abuse of its dominant position. On its side, Microsoft affirms that it yielded to the court decisions and accuses the Commission of maintaining excessuveky close links with its rivals. A fine of 2 million euro per day is at stake if the Commission is not satisfied with the outcome of the closed-door hearing of the giant, envisaged for 30 and 31 March.

Whether or not Microsoft applied the remedy with regard to the question of the servers, the Windows version detached from its multimedia player has been in the Microsoft catalogue since last June and is not popular with the public. According to the latest report of the Molinari Economic Institute published today, Does the tying and bundling of products harm consumers?, the failure of this remedy imposed by the Commission illustrates the flawed basis on which European antitrust policy rests as regards the tying and bundling of products.

As the author first underlines, these practices can provide a service to consumers: “If computer lovers or people seeking quite specific products prefer a 'piecemeal' computer, other users will greatly benefit from the purchase of a ready-to-use bundle, saving them a tiresome search for information on the various products, as well as time and the necessary moving about to make their separate purchases." As tying and bundling cannot then be stigmatised a priori, "It becomes necessary to establish a criterion making it possible to distinguish between 'normal' practices, benefiting consumers, and 'restrictive' practices, harming consumers".

For the IEM, governmental authorities cannot carry out this task. It is market competition which makes it possible to assure the ongoing flourishing of the best practices in each particular case, even if a firm is in a dominant position: "the choice of the separate or tied sale is gauged by losses or profits according to the extent it meets consumers’ wishes". The supposed inferiority of the solution offered by Microsoft does not need the European Commission to be discovered if it exists: "the integration of poor quality software harms the value of Windows. It supports the success of alternative operating systems and adapted multimedia readers."

Governmental authorities acting without the pivot of competition and its "mechanism" of losses and profits, the report concludes, "are unable to replace the competing process of a free market to guarantee the best possible services to consumers."

The economic note is available on the IEM website :

French version : http://www.institutmolinari.org/pubs/note20062fr.pdf

English version : http://www.institutmolinari.org/pubs/note20062.pdf

Contacts : Cécile Philippe on +32 (0) 2/506 40 06

                  Xavier Méra on +32 (0) 2/506 40 04

Molinari Economic Institute                 www.institutmolinari.org

Rue du Luxembourg, 23, bte 1           1000 Bruxelles Belgique

This TRA feature has been edited in accordance with TRA’s Statement of Policy.

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