Bundling in the Australian Telecommunications Industry

This article considers some of the implications for social welfare of bundling in the Australian telecommunications industry. The practice of bundling—offering two or more products for sale as a single package—is a strategy used in many industries. Although common, there are circumstances when the practice can be used anti-competitively. Yet bundling does not always harm consumers; at times, the practice benefits both consumers and producers, and it can even advantage consumers to the detriment of producers. The general literature on bundling suggests that its effect on social welfare depends on several factors such as market structure, the elasticity of demand for the products, the marginal cost of production, economies of distribution and the use of complex menus. We consider these factors when assessing the likely welfare effects of bundling in the Australian telecommunications industry, concluding that the potential effects of bundling on competition and the information costs imposed on consumers by complex menus of services seem the most significant considerations for social welfare. It is desirable that regulatory authorities monitor developments closely, although heavy-handed regulation of bundling seems undesirable.