Tying? |
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Tying is the practice of making the sale of one good (the tying good) to the de facto or de jure customer conditional on the purchase of a second distinctive good (the tied good). Tying is normally regarded as an anti-competitive practice as it is implied in this that one or more components of the package are sold individually by other businesses as their primary product, and thereby this bundling of goods would hurt their business. It is also implied that the company doing this bundling has a significantly large market share so that it would hurt the other companies who sell only single components.
Tying is often used when the supplier makes one product that is critical to many customers. By threatening to withhold that key product unless others are also purchased, the supplier can increase sales of less necessary products.
Horizontal tying is the practice of requiring customers to pay for an unrelated product or service together with the desired one. For example, all of one company's toothbrushes come with the company's ice skates.
Vertical tying is the practice of requiring customers to purchase related products or services from the same company. For example, a company's automobile only runs on its own proprietary gas and can only be serviced by its own dealers. In an effort to curb this, many jurisdictions require that warranties not be voided by outside servicing; for example see the Magnuson-Moss Warranty Act in the United States. More recently, video game consoles run only software licensed by the console manufacturer and use lockout chips to enforce this.
Microsoft ties together Microsoft Windows, Internet Explorer, and Outlook Express.
Tying may be the action of several companies, as well as the work of just one firm.
It was first made potentially illegal in the United States by the Sherman Antitrust Act (section 1) if the firm has market power in the tying good, and a "non-trivial" amount of business is affected by the tying.
