Asymmetry of Subscriber-Base, Switching Cost, and Anti-Competitiveness of Bundling

In general, bundles are supplied with discount. Thus bundles are pro-competitive in view of increasing consumers' welfare. On the other hand, bundles are anti-competitive because of leveraging market power from dominant tying-good market to competitive tied-good market, intensifying entry barrier and so on. Moreover if a good (or service) has following properties such that subscription and subscription fee should be necessary to use it, and switching cost occurs in time of changing service provider, then bundling discount, especially loyalty discount could be used as a strategy to exclude competitors. The typical example is bundle of telecommunication services. If a dominant firm with superior subscriber-base than his competitors introduces a bundle which ties his dominant service with other competitive services, and discounts competitive service tariff conditionally on the purchasing quantity of dominant services, then although equally efficient competitors introduce the same bundle, they could be excluded from the relevant market because of inferior subscriber-base and difference in switching cost. This paper analyzes such cases theoretically. And this paper also studies Korean telecommunication service bundle which ties dominant mobile telecommunication service and competitive broadband service as an example. The paper shows that the 'Korean safe harbor[ which decides a bundle is not anti-competitive when the discount rate is less that or equal to 30% has a possibility to mislead