Quantity “forcing” and Exclusion: Bundled Discounts and Nonlinear Pricing

Quantity “forcing” refers to pricing schemes that reward a buyer for purchasing some threshold quantity from a firm. When there are significant scale economies and buyers are unable to coordinate, economic theory shows that a firm can profitably use quantity forcing to exclude rivals, reducing overall welfare and harming some buyers. Inducements to reach the quantity threshold may be provided through nonlinear pricing of the target product alone or through bundled discounts on that firm’s other “monopoly” product(s). Open questions remain about whether bundled discounts are the most effective way to achieve exclusion. Alternatively, bundled discounts can be used to extract rent from a monopoly market but again, single-good nonlinear pricing schemes seem superior. Cost-based rules for detecting predation are problematic when applied to bundled discounts or to single-good nonlinear pricing. A workable policy rule that recognizes also the efficiency potential of such pricing practices should combine structural screens with a more detailed conduct inquiry.