Tie-in Arrangements and Bundling Compared

Both practices involve selling two products together. A tie-in makes the purchase of the second a condition of obtaining the first, so the buyer has no choice. Bundling offers the products together on terms that make separate purchase unattractive, so the buyer has a choice it is unlikely to exercise. The legal treatment follows the difference: a tie is named in both Section 3(4)(a) and Section 4(2)(d), while bundling is examined by its effect under the general words of those provisions.

1. The Two Practices

Basis	Tie-in arrangement	Bundling
Definition	Requiring a purchaser of goods, as a condition of such purchase, to purchase some other goods	Offering two or more products together, whether or not they are also available separately
Choice	None; the second product must be taken	Formally available, but the pricing may make separate purchase pointless
Statutory treatment	Named in Section 3(4)(a) and in Section 4(2)(d) as a supplementary obligation	Examined under the general words by its effect
Forms	Contractual, technical, or achieved through warranty or supply conditions	Pure bundling, where only the package is sold; mixed bundling, where the package is priced far below the sum of the parts
Harm	Foreclosure of the market for the tied product	The same, where the discount is large enough that a single-product rival cannot match it
Justification	Quality, safety, technical interoperability, and the protection of goodwill	Genuine cost savings from joint supply, and convenience to buyers

2. The Ingredients of a Tie

Two separate products. There must be separate demand for each. Where buyers never want one without the other, or where the combination is an integrated product with its own characteristics, there is no tie. This is the question on which most tying arguments turn in technology cases.
Market power in the tying product. Without it the buyer refuses and goes elsewhere, and the arrangement forecloses nothing. Under Section 4 this is supplied by the requirement of dominance; under Section 3(4) it must be shown as part of the effects analysis.
Coercion. The purchase of the second must be a condition of obtaining the first. The condition may be practical rather than contractual: supplying only as a package, voiding a warranty if another supplier is used, or designing the product so that only the seller's version functions.
Foreclosure of a not insubstantial part of the market for the tied product, which is where the harm lies: rivals in the tied product lose access to the customers who must take the seller's version.

3. Why Bundling Is Treated More Leniently

Bundling is ubiquitous and usually beneficial. A package of complementary goods may be cheaper to produce, to distribute and to support than the components sold separately, and buyers frequently prefer it. The competition objection arises only where the discount on the package is so large that a rival selling one component alone cannot match it even if it is more efficient in that component, because it would have to give away the entire bundle discount on a single product. That is the theory of harm sometimes described as portfolio effects, and it requires the seller to have a strong position in at least one component of the bundle.

⚠ How to analyse a tie or a bundle

Ask first whether there are two products or one, since an integrated product cannot be untied. Ask next whether the seller has power in the first product, because without it the buyer walks away. Ask then whether the buyer is compelled, either by contract or in practice. Ask finally what proportion of the market for the second product is closed to rivals as a result, and for how long. Only at the end consider the justification, which in practice is one of three: quality or safety requiring the components to work together, technical necessity, or cost savings from joint supply that are passed on.

4. In Digital Markets

Tying and bundling arguments recur in technology cases in three forms. The first is the requirement that a device manufacturer pre-install a suite of applications as a condition of licensing an operating system or an application store, which is examined as a supplementary obligation under Section 4(2)(d) and as leveraging under Section 4(2)(e). The second is the requirement that a developer use the platform's own payment service as a condition of distribution, the tying product being the store and the tied product the billing system. The third is the offer of an ecosystem of services on terms that make it unattractive to use any component from a rival. In each case the first question is the same one that arises anywhere else: are these two products, or one?

5. Related Topics and Provisions

Topic or provision	Connection
Vertical Agreements: Section 3(4)	Tie-in as one of the five listed restraints
Abuse of Dominant Position: Section 4	Supplementary obligations and leveraging
Competition Law in Digital Markets	Pre-installation, billing requirements and ecosystems
Sections 3(4)(a), 4(2)(d), 4(2)(e) and 19(3), Competition Act, 2002	The provisions relied on here