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14 - Tying and Exclusive Dealing

Published online by Cambridge University Press:  12 November 2009

Keith N. Hylton
Affiliation:
Boston University
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Summary

INTRODUCTION

Tying occurs when a seller of a product conditions the sale of the product on the buyer's agreement to purchase some other product. For example, the seller of a copying machine (tying product) conditions the sale of the machine on the buyer's agreement to buy all of the copying paper (tied product) from the seller of the machine. It should be clear that coercive tying requires market power. One of a dozen grocery stores in a community could not force consumers to purchase a pound of flour with every box of toothpicks.

Anticompetitive Theory of Tying and Chicago School Critique

What's wrong with tying? The thought that has informed antitrust attacks is the leverage theory; that is, the notion that a firm with monopoly power in one market can expand its power into another market. The potential harm to consumers, under this theory, results because the seller of the tying product extends monopoly power in the tying product into the market for the tied product.

We have seen that the leverage argument is not airtight (see Chapter 10). Consider, for example, the argument that the Otter Tail Power Company leveraged its monopoly of transmission lines by forcing consumers to buy power from it as well. With low contracting costs, Otter Tail could have collected a monopoly rent by charging a sufficiently high “wheeling fee” (the rental fee charged by an owner of a power line to a power supplier).

Type
Chapter
Information
Antitrust Law
Economic Theory and Common Law Evolution
, pp. 279 - 310
Publisher: Cambridge University Press
Print publication year: 2003

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