Bundled Up

By Thomas Sowell



FORMER ANTITRUST DIVISION CHIEF William Baxter will always be remembered as the man who broke up AT&T. Once, at a social gathering, I asked him how many heartfelt letters of thanks he had received from consumers for having done so. His wry smile suggested to me that there were not many. However, he seemed sure that this was not the relevant criterion.

The breakup of AT&T always comes to mind whenever I am going through my storage space and see all the unused telephones that are little monuments to my vain efforts to get a properly functioning phone system in my home. Whenever I call the telephone manufacturer with my problem, the technician assures me that the problem must be in the way my house is wired or otherwise serviced by the local phone company. And when I call the local phone company, they are equally certain that the problem must be in the phone that I bought.

Back in the days when AT&T ran the whole show, this kind of game could not be played. It was all one integrated phone system, with AT&T manufacturing its own phones, operating the local phone company and doing everything else that needed doing.

In short, the consumer didn't buy isolated pieces of the total product he wanted—telephone service—and then try to put them together himself. Instead, the producer put everything together and sold them as a bundle for which the producer was responsible. Unfortunately, "bundling" is a naughty word among antitrust crusaders. They didn't like it when AT&T did it and they don't like it when Microsoft does it today.

Since different parts of a computer operating system could be sold separately, it looks suspicious to the Justice Department when Microsoft sells the basic operating system, an Internet browser, word-processing software and other features all bundled together as Windows 95 or Windows 98. There are imaginative theories as to why it would be so much better if each part of the system were sold in a textbook model of a competitive market. That way, Netscape, Novell and other software manufacturers could compete "on a level playing field" with Microsoft, without the latter's great advantage of having its own operating system in which to bundle the components.

Bundling is neither good nor bad categorically. People who buy point-and-shoot cameras automatically get a lens with the camera, but people who buy high-end cameras like a Sinar or a Linhof are considered to be sophisticated enough to select their own lenses for their own respective purposes. Sinars and Linhofs don't even come with a place for you to put the film because there are a variety of possible film-holders for different purposes and the manufacturers do not want to alienate professional photographers by pre-empting their choices.

“Bundling” is a naughty word among antitrust crusaders. Maybe the crusaders should talk with consumers.


Most of us do not want to become telephone experts. Still less do we want it demonstrated how unexpert we are when we try to put together a phone system. Whenever the "success" of the breakup of AT&T is discussed, there are no statistics on how many people like me have bought how many phones they couldn't use or spent how many hours or how much time struggling with something that we could once take for granted.

There is no reason to doubt that a suitably trained engineer could put together all the components of a telephone system or of a computer operating system at lower cost by buying the separate components and bundling them together himself.

However, for the rest of the population that has not gone to M.I.T. or Cal Tech the value of bundling can be considerable. No doubt, in the process of bundling, Bill Gates may well give more thought to how this will benefit Microsoft than how it will benefit Netscape or Novell.

Enter the government rescuers and saviors, who want to make everything "fair" by banning "advantages." Very few of us are apostles of unfairness or privilege. But some of us do ask what the cost is of trying to make the cosmos the way it should be ideally.

As with most other attempts to make the real world fit a model, the costs can be considerable, even if they are not considered. Just getting a fast-moving industry like computers bogged down in a slow-moving process like antitrust cases can cost the economy more than any realistically conceivable gain.

Dr. Thomas Sowell is an economist and a senior fellow at the Hoover Institution in Stanford, Calif.




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