Bundles of trouble: Can competition law adapt to digital pricing innovation?

Abstract

The burgeoning digital economy is characterized by bundled offers of goods and services, many with near-zero marginal cost, in highly concentrated markets often exhibiting competition 'for the market' and 'winner-takes-all' outcomes. Acceptable competitive behaviour in these markets likely differs substantially from that in markets for goods with standard economic characteristics. The suitability of current tools used to specify and enforce competition laws for governing commercial activity in a digital economy dominated by bundled offers is questionable. Classical market analysis focuses narrowly on individual product markets. In bundle product markets, quantitative econometric analysis becomes computationally intractable as the own-and crosselasticities increase exponentially with the number of products in the bundle and providers in the market. Furthermore, classic econometric analysis cannot inform decisions in markets where bundles are yet to be offered. Simulation and numerical analysis of hypothetical scenarios under different consumer preferences and firm strategic choices offers another means of evaluating effects of intervention in specific circumstances. We illustrate using a model based on the (declined) proposed New Zealand merger between Sky Television and Vodafone and make recommendations for both theory and practice as to how simulation analysis can be used to complement more conventional competition analyses.

Content and Access Provision in a Discrete Competition Model

“…[21] questions the relevance of applying [32] and [14] supporting a strategy of strategic foreclosure to analyse a merger proposed in 2017 between a pay television and a broadband provider because the circumstances prevailing violated the assumptions of perfect complementarity, duopoly, linear demand, symmetrical substitutability, and complete coverage assumptions upon which the outcomes of the models crucially depend. [22] and [23] developed a simulation and numerical analysis model calibrated to the relevant market circumstances to explore outcomes when a number of these assumptions were relaxed and illustrate how it could have assisted the competition authority in making its decision. This paper begins to address the question of how useful these models are in addressing the dilemmas firms face in choosing their bundling and pricing strategies, and whether the simulation and numerical analysis approach adopted in our prior papers can likewise offer different insights, for both the firms seeking to maximise (or at least increase) profits and regulators assessing the effects of bundling on consumer and total welfare.…”

“…This is plausible if, for example, each was using the same consumer WTP assumptions when pricing its entry into a new product category where each knows its rival(s) will simultaneously introduce a similar (differentiated) product variant. This model differs from [23] and [22], which considered monopoly pricing by a firm with market power seeking to foreclose its rivals. Like those models, the one in this paper incorporates the behaviours most-feared by regulators and competition authorities because of potential harms to competition, total and consumer welfare.…”

Strategic Use of Zero-rating of Mobile Data

“…Benefits and harms may accrue in multiple markets, many of which may be far-removed from both that in which the firm engaging in the pricing practice is deemed to be operating (e.g., in CAP markets not ISP markets) and the territory over which the relevant authority has jurisdiction (e.g., a CAP operating from a different country to the ISP). Further decisionmaking complications exist due to extensive use of bundling of internet and content access with other products and services (e.g., with fixed and mobile voice applications, and pay television, in classic 'triple' and 'quadruple' play subscriptions), and Strategic Use of Zero-rating of Mobile Data DOI: http://dx.doi.org /10.5772/intechopen.84130 the fact that little may yet be known about consumer valuations and preferences in markets for products that are comparatively new [7]. While the Body of European Regulators for Electronic Communications (BEREC) has endeavoured to address this complexity by issuing a set of guidelines for member state regulators to assist in implementing the European Net Neutrality Regulation [8], they have proven problematic.…”