Author(s)
David S. Evans and Michael A. Salinger
Source
CESifo Working Paper Series No. 1297, 2004
Summary
This paper asks how consumers are helped when producers offer combined medicines to relieve different cold symptoms.
Policy Relevance
Competition policy should not be hostile to common business practices that help consumers, or it will do more harm than good.
Main Points
- “Tying” happens when a firm requires customers to purchase product B when they buy product A. “Bundling” is when a firm encourages customers to buy both, perhaps by offering a discount.
- Over-the-counter pain relief and cold medicines are often sold in combinations. Consumers pay less for tablets with multiple ingredients than they would to buy them separately.
- Producers offer bundling discounts because it is cheaper to produce a combined product on an ongoing basis, or because it is easier to recover money already spent from two products than one, or both.
- In the case of medicines, consumer savings come from savings on both types of costs.
- Competition policy would be improved by this kind of analysis for many products.
