Research Handbook on the Economics of Antitrust Law

Research Handbook on the Economics of Antitrust Law

Research Handbooks in Law and Economics series

Edited by Einer R. Elhauge

One might mistakenly think that the long tradition of economic analysis in antitrust law would mean there is little new to say. Yet the field is surprisingly dynamic and changing. The specially commissioned chapters in this landmark volume offer a rigorous analysis of the field’s most current and contentious issues.

Chapter 5: Tying, Bundling, and Loyalty/Requirement Rebates

Nicholas Economides

Subjects: economics and finance, competition policy, law and economics, law - academic, competition and antitrust law, law and economics

Extract

Nicholas Economides* I TYING AND BUNDLING: DEFINITIONS Tying of two products (or services) occurs when a seller sells one good on the condition that the buyer buys the other good from that seller: A tying arrangement is ‘an agreement by a party to sell one product but only on the condition that the buyer also purchase a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier.’1 Of particular interest are cases when the seller has market power in the tying product (call it product A) which is the one required to be sold with the other (tied) product. The tied product (call it product B) is the one that the buyer has to take to get the tying product. There are many different ways in which the sale of a product can be conditioned on the sale of another. The tie that comes first to mind is the sale of two goods together in a 1:1 ratio or, more generally, in a fixed ratio. But there are also other more sophisticated ways to condition tying. A tying condition may require a certain number of units of the tied good to be bought from the same seller. An even more restrictive condition resulting in a ‘requirements tie’ is an agreement to sell the tying product only if the buyer buys all or most of its requirements of the tied product from that seller. The ‘requirements tie’ conditions pricing on the...

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