Tying or tied selling


Institution Definition

Commercial practice of conditioning the sale of one product on the purchase of another product. If tying is not objectively justified by the nature of the products or their commercial usage, such practice may restrict competition. Economic theory suggests that a firm which enjoys market power in one market (tying market) may, under certain conditions, be able to leverage this market position or dominance into another market (tied market), squeeze competitors out of this second market and then raise prices above the competitive level. In a competition analysis perspective, the main negative effect of tying on competition is, therefore, possible foreclosure on the market of the tied product. In addition tying may lead to higher prices for both the tying and the tied product. European Commission

Refers to situations where the sale of one good is conditioned on the purchase of another good. One variant is full-line forcing in which a seller presses (or forces) a complete line of products on a buyer who is predominantly interested in only a specific product. Tied selling is sometimes a means of price discrimination. Competition concerns have been expressed that tying may foreclose opportunities for other firms to sell related products or may increase barriers to entry for those that do not offer a full line of products. An opposite view is that these practices are efficiency driven i.e., used to reduce costs of producing and distributing the line of products and ensuring that like quality products are used to complement the product being sold. For example, a computer manufacturer may require purchase of disks in order to prevent damage to or poor performance of his equipment by the use of substitute lower quality disks. There is increasing recognition that depending on different market situations, tied selling arrangements may have a valid business rationale. In the administration of competition policy, an increasing number of economists suggest adopting a rule of reason approach to tied selling. © OECD

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