Tying Products and Services for Sale and US Antitrust Law
Whether you arrive at the “tying-arrangement” issue from the perspective of the person tying, the person buying the tied products, or the person competing with the person tying, you should know when the antitrust laws forbid the practice.
Most vertical agreements—like loyalty discounts,bundling, exclusive dealing, etc.—require courts to delve into the pro-competitive and anti-competitive aspects of the arrangements before rendering a judgment. Tying is a little different.
Tying agreements—along with price-fixing, market allocation, bid-rigging, and certain group boycotts—are considered per se antitrust violations. That is, a court need not perform an elaborate market analysis to condemn the practice because it is inherently anticompetitive, without pro-competitive redeeming virtues. Even though tying is often placed in this category, it doesn’t quite fit there either. Again, it is a little different.
Proving market power isn’t typically required for practices considered per se antitrust violations, but it is for tying. And business justifications don’t, as a rule, save the day for per se violations either. But, in certain limited circumstances, a defendant to an antitrust action premised on tying agreements might defend its case by showing exactly why they tied the products they did.
At this stage, you might be asking, “what the heck is tying?” Do the antitrust laws prohibit certain types of knots? Do they insist that everyone buy shoes with Velcro instead of shoestrings? The antitrust laws can be paternalistic, but they don’t go that far.
A tying arrangement is where a customer may only purchase a particular item (the “tying” item) if the customer agrees to purchase a second item (the “tied” item), or at least agree not to purchase that second item from the seller’s competitors. It is sort of like bundling, but there is an element of coercion.
With bundling, a seller may offer a lower combined price to buyers that purchase two or more items, but the buyers always have the right to just purchase one of the items (and forgo the discount). With tying, by contrast, the buyer cannot just purchase the one item; if it wants the first item, it must purchase the second.
Well, then why doesn’t the customer just go to someone else if they don’t want both items? That’s the issue. In a tying arrangement, the reason it is a problem is because the seller has a monopoly (or at least market power) over the first item, so buyers are, in many instances, stuck with that seller for that item. And if they can only obtain the monopolized item by purchasing the second item, they might as well just purchase the second item.
This, of course, may foreclose competitors from profiting from offering the second item. They will lose much of their market, even if they offer a superior product for a better price, because the customers will end up purchasing the second item from the other seller; the one with the monopoly for the first item. And this, ladies and gentleman, is why the antitrust laws care about tying.
You can review the entire blog entry, including a list of the elements for an antitrust tying claim, at the link below.