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2. Anti-competitive tying and bundling

What are tying and bundling?

Tying occurs when a supplier makes the sale of one product (the tying product) conditional upon the purchase another product (the tied product), and thus the tying product is not sold separately. Bundling refers to selling a package of two or more products at a discounted price.

 

[Source: Commission’s Guideline on the Second Conduct Rule Para 5.8]

 

Tying and bundling are common commercial arrangements that generally do not harm competition and may often result in:

  1. Lower production costs;
  2. Reduced transaction and information costs; and
  3. Increased convenience and variety for consumers.

[Source: Commission’s Guideline on the Second Conduct Rule Para 5.9]

 

When does tying and bundling raise competition concerns?

An undertaking with a substantial degree of market power in the tying market can use tying to harm competition in the tied market. By doing so it may reduce the number of potential buyers that are available for its competitors in the tied market. This may in turn cause its competitors to be less effective as competitors or to exit the tied market.

 

Similarly for bundling, the undertaking with substantial market power in the market of one bundled product can use bundling to harm the other competitors in the markets for the other products that are also part of the same bundle.

 

Tying and bundling will be assessed on an effect basis. An anti-competitive effect may arise in particular when the conduct is used to force the other competitors out of the market.

 

[Source: Commission’s Guideline on the Second Conduct Rule Paras 5.10-5.11]

 

Hypothetical example

The leading supplier of medical devices to Hong Kong hospitals and clinics stipulates in its sales contracts that the consumable medical products used with the devices must be purchased exclusively from it. These contractual requirements significantly limit the customer base available to competing manufacturers of consumables. If the medical devices supplier has a substantial degree of market power in the relevant medical devices markets, the contractual arrangements (which cause harm to competition in the market for consumable medical products) may amount to an abusive tie in contravention of the Second Conduct Rule.

 

The analysis might be similar with respect to the tying of a service. For example, if the medical devices supplier imposed a condition requiring customers to use the supplier (or an affiliate of the supplier) for the purposes of obtaining maintenance and repair services for the devices, this could raise concerns under the Second Conduct Rule.

 

[Source: Commission’s Guideline on the Second Conduct Rule Example 6]

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