Tying and Bundling Arrangements

BUNDLING ARRANGEMENTS

Bundling involves offering two or more products or services together as a single package for sale. 

Imagine you go to a fast-food restaurant and see they offer a “meal deal” that includes a burger, fries, and a drink for a set price. This is bundling. Instead of buying each item separately, you get them all together in one package. The benefit for you is that you might save money compared to buying each item individually.

Another example is when you buy a new smartphone and the seller offers a bundle that includes a phone case, screen protector, and headphones at a discounted price if you buy them together. Again, this is bundling because you’re getting multiple products together instead of buying them separately.

TYING ARRANGEMENTS

Tying arrangements occur when the sale of one product or service (the “tying” product) is conditioned on the purchase of another product or service (the “tied” product). 

Let’s say you’re interested in buying a gaming console. The company that makes the console says you can only buy their controllers and games if you also buy their console. You can’t buy the controllers or games separately from other sellers. This is a tying arrangement. The company is “tying” the sale of the controllers and games to the sale of their console.

Another example is if you want to subscribe to a streaming service, but the provider says you can only access it if you also sign up for their internet service. They’re tying the availability of the streaming service to the purchase of their internet service.

MOTIVE

The main purpose of tying and bundling is to boost the sales of a less popular product by leveraging the market influence of a highly popular product. In such arrangements, a less desirable product, lacking significant competitive advantages compared to similar offerings from other companies, is paired with a dominant product—one in which the entity holds a commanding market position.

LEGISLATION

In India bundling and tying are dealt with as being different practices, unlike some other foreign jurisdictions, wherein the two practices are treated similarly. 

Section 3(4)(d) of the Competition Act of 2002 deals with tie-in arrangements and the language of the provision makes it amply clear that its scope is limited to include only cases of tying arrangements and not bundling.

In the case of Shri Sonam Sharma v Apple Inc. and Ors, the Competition Commission of India (CCI) recognized that tie-ins should be evaluated under the rule of reason approach, as outlined in scheme 3(4) of the Act. Subsequently, the CCI outlined ‘necessary and essential conditions’ regarding ‘anti-competitive tying’, which include: 

(A) The existence of two distinct products or services capable of being tied together; (B) The seller must possess sufficient economic power over the tying product to significantly restrict free competition in the market; 

(C) The tying arrangement must impact a substantial portion of commerce.

Section 4(2)(d), on the other hand, deals with bundling arrangements for this to be applied, the entity undertaking bundling arrangements should have “sufficient market power” in the market of a dominant product. 

Tying and Bundling Arrangements  have consistently drawn the attention of antitrust agencies due to their potential for anti-competitive consequences.