bundling home

Bundling is when a business sells two or more things together, and is reluctant to sell one thing without the other. For example, cars are sold with engines. Computers are sold with operating systems, and the operating system includes many programs. Cable television services sell channels in bundles.

Bundling seems unfair to consumers, because consumers are forced to buy extra things which they might not want. On the other hand, bundling may give manufacturers higher volumes and greater economies of scale, which may lead to lower prices. In other words, if the government banned bundling, consumers who did not want the complete bundle would probably pay less, while consumers who did want the complete bundle would probably pay more. A ban on bundling would be good for some consumers but bad for other consumers.

Bundling reduces competition by increasing barriers to entry, because new competitors may need to produce the entire bundle instead of only one part. For example, suppose someone invents a new kind of car transmission. If cars were sold without transmissions, then the inventor would have a ready market in all the consumers who bought cars without transmissions. But if the car manufacturers refuse to sell cars without transmissions and cancel the warranties on their cars if the transmissions are changed, then the entrepreneur will have difficulty selling transmissions. In order to sell transmissions, the entrepreneur will have to manufacture complete cars, which is more difficult than manufacturing transmissions.

Bundling reduces consumer choice because it is difficult for consumers to combine parts of one bundle with parts of a different bundle. You can't buy a ford car with a toyota engine.

Suppose that there is only one company which makes clocks. The clock company decides to make cars. The clock company decides to raise prices on clocks, and give away a free car with every clock. Everyone who wants a clock has to buy the clock from that company, because no other company makes clocks. Every clock comes with a free car. So every clock buyer now has a car, and probably does not want a second car, so they will not buy cars from the competing car companies. Soon all the competing car companies will go bankrupt, and the clock company will dominate the car industry.

But that will not happen because the free market does not work that way. The clock company will have to raise clock prices by a large amount to pay for the free cars. Many consumers will object to paying such high prices for clocks. So an entrepreneur will create a new clock company, and sell low priced clocks without cars. Consumers will stop buying clocks from the old clock company and will buy clocks from the new clock company, and the old clock company will go bankrupt.

This shows that bundling is not a major problem, because competition prevents major abuses of bundling. There is no need for government to do anything about major abuses of bundling, because the free market already prevents major abuses of bundling. But should the government do anything about minor abuses of bundling?

If the government wanted to prevent abuses of bundling, the government would have to make rules about which things can be bundled together and which things cannot be bundled together. I doubt that the government is capable of making good rules. Bad rules about bundling would be a bigger problem than minor abuses of bundling.

Government is the biggest bundler. Government bundles roads with schools with police with the military with antipoverty programs, etc. Every citizen must buy the complete bundle, unless they reject the complete bundle by leaving the country. You cannot choose to take the antipoverty programs while rejecting the military. Government demands that all people obey all laws. Government gets very annoyed when people demand the right to choose which laws to obey.

Many socialists think the government should regulate bundling by businesses. But regulation is part of the bundle of services provided by government. So socialists are demanding more bundling by government. Socialists say bundling is bad, therefore government should do more bundling.

The best solution is competitive federalism. The central government should have no restrictions on bundling by businesses or by competing governments. Competing governments may restrict bundling, or may have no restrictions on bundling.

I predict that competitive federalism would result in very competent competing governments. The competing governments would be competent enough to make good rules about bundling by businesses. So major abuses of bundling would be prevented by the free market, and minor abuses of bundling would be prevented by the competing governments.