BUNDLES OF JOY: THE UBIQUITY AND EFFICIENCY OF BUNDLES IN NEW TECHNOLOGY MARKETS

This paper examines the economic logic underlying bundles andtie-in sales and uses the lessons learned from that examinationto analyze seven specific instances of bundling that have beenthe subject of antitrust scrutiny or other policy initiatives.Of particular interest are products that are nonrivalrous inconsumption, making all-you-can-eat pricing a viable candidatefor efficiency. The main economic points are the following:À-la-carte pricing may populate economic models, butmost products are bundles. They are bundles because bundlesare generally more efficient. Tie-in sales are much less commonand often not properly understood in textbook discussions. Marketforeclosure, the principal efficiency concern with tying andbundling, is likely to be exceedingly rare. The seven instancesof bundling (ties) examined in the paper are: cable television;patent pools; blanket licenses; iPods and iTunes; telephones;music albums and songs; operating systems and component programs.