Tying and bundling can have anti-competitive effects – foreclosure, price discrimination &
179. However, tying and bundling can lead to the following possible anticompetitive
effects: foreclosure, price discrimination and higher prices. The present section deals only with
the foreclosure effects of tying and bundling.
Horizontal Foreclosure 180. A company that is dominant in the tying market can through tying or bundling foreclose the tied market and can indirectly also foreclose the tying market (horizontal foreclosure). By tying the dominant company reduces the number of potential customers that is available for its competitors in the tied market. This may cause existing competitors to be marginalised or exit from the tied market and create a barrier for new entrants. Economies of scale, network effects and high entry barriers in the tied market all make such a strategy more
likely and more successful.
Domco may foreclose in tied market and indirectly in tying market 181. The foreclosure of the tied market may allow the dominant company to achieve larger profits in the tied market, for example through catching more of the customers in that market. Moreover, tying may allow the dominant company to protect or strengthen its dominant position in the tying market. If the tied good is important for buyers of the tying good a reduction of alternative suppliers of the tied good can make entry in the tying market more difficult, since it may in the end make it necessary to enter both the tying and the tied market in order to compete effectively. Furthermore, the dominant firm may through tying force the exit from the tied market of a product which is or may become itself a threat to the dominant product in the tying market.113
113 Pure and mixed bundling can have similar foreclosure effects to those described above for tying. However, the terminology used for tying may not be appropriate, since in a sense both markets become tied in the case of pure bundling, while none of them are “tied” in the traditional sense in the case of mixed bundling.