The Antitrust Revolution: Economics, Competition, and Policy

By John E. Kwoka Jr.; Lawrence J. White | Go to book overview

CASE 16
Bundling: GE-Honeywell (2001)

Barry Nalebuff


INTRODUCTION

The economic theory of bundling has moved from the classroom and academic journals to the public policy arena. Its debut was dramatic. On July 3, 2001, the European Commission (EC) blocked the $42 billion merger between General Electric (GE) and Honeywell.1 A primary reason for their objection to this combination was a concern over bundling.

This case study uses the context of the proposed GE-Honeywell merger to address the concerns raised by bundling.2 We set out the theory as put forth by the EC and try to reconcile this theory with both the economic theory of bundling and the facts of the case. We discuss what is meant by bundling and explain when it is a potential problem and when it is not. Based on this understanding, we propose antitrust policy recommendations to deal with the novel issues raised by bundling.


BACKGROUND

On October 19, 2000, United Technologies Corporation (UTC) reported that it was in merger discussions with Honeywell. Three days later, a merger was announced—but the buyer was GE, not UTC.

1The merger was voted on by the twenty-member European Commission. Their vote confirmed the
recommendation made by Competition Commissioner Mario Monti, who, in turn, was given a rec-
ommendation by the European Union Merger Task Force.

2The author was an economic expert for GE-Honeywell in their presentation to the European
Union Merger Task Force. The application of bundling theory to the GE-Honeywell merger was
done together with Patrick Rey, Carl Shapiro, Shihua Lu, and Greg Vistnes. The opinions expressed
in this paper are solely those of the author.

-388-

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