Tying
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
anti-competitive 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.
By some accounts,
Microsoft ties together
Microsoft Windows,
Internet Explorer, and
Outlook Express. Microsoft's view of it is that a
web browser and a mail reader are simply part of an
operating system (and are included with all other
personal computer operating systems). Just as the definition of a
car has changed to include things that used to be separate products, such as
speedometers and radios, the definition of an operating system has changed to include those formerly separate products.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. See
International Salt Co. v. United States,
332 U.S. 392 (
1947).
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Bundling (marketing)*
Iunctim
