Tying (informally, product tying) is the practice of selling one product or service as a mandatory addition to the purchase of a different product or service. In legal terms, a tying sale makes the sale of one good (the tying good) to the de facto customer (or de jure customer) conditional on the purchase of a second distinctive good (the tied good). Tying is often illegal when the products are not naturally related. It is related to but distinct from freebie marketing, a common (and legal) method of giving away (or selling at a substantial discount) one item to ensure a continual flow of sales of another related item. Some kinds of tying, especially by contract, have historically been regarded as anti-competitive practices. The basic idea is that consumers are harmed by being forced to buy an undesired good (the tied good) in order to purchase a good they actually want (the tying good), and so would prefer that the goods be sold separately. The company doing this bundling may have a significantly large market share so that it may impose the tie on consumers, despite the forces of market competition. The tie may also harm other companies in the market for the tied good, or who sell only single components. One effect of tying can be that low quality products achieve a higher market share than would otherwise be the case. Tying may also be a form of price discrimination: people who use more razor blades, for example, pay more than those who just need a one-time shave. Though this may improve overall welfare, by giving more consumers access to the market, such price discrimination can also transfer consumer surpluses to the producer. Tying may also be used with or in place of patents or copyrights to help protect entry into a market, discouraging innovation. 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. In the United States, most states have laws against tying, which are enforced by state governments. In addition, the U.S. Department of Justice enforces federal laws against tying through its Antitrust Division.
Types Horizontal tying is the practice of requiring consumers to pay for an unrelated product or service together with the desired one. A hypothetical example would be for Bic to sell its pens only with Bic lighters. (However, offering a limited free item with another purchase as a promotion by a company does not constitute horizontal tying.) Vertical tying is the practice of requiring customers to purchase related products or services together, from the same company. For example, a company might mandate that its automobiles could 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.
In United States law Certain tying arrangements are illegal in the United States under both the Sherman Antitrust Act, and Section 3 of the Clayton Act. A tying arrangement is defined as "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees he will not purchase the product from any other supplier." Tying may be the action of several companies as well as the work of just one firm. Success on a tying claim typically requires proof of four elements: (1) two separate products or services are involved; (2) the purchase of the tying product is conditioned on the additional purchase of the tied product; (3) the seller has sufficient market power in the market for the tying product; (4) a not insubstantial amount of interstate commerce in the tied product market is affected. For at least three decades, the Supreme Court defined the required "economic power" to include just about any departure from perfect competition, going so far as to hold that possession of a copyright or even the existence of a tie itself gave rise to a presumption of economic power. The Supreme Court has since held that a plaintiff must establish the sort of market power necessary for other antitrust violations in order to prove sufficient "economic power" necessary to establish a per se tie. More recently, the Court has eliminated any presumption of market power based solely on the fact that the tying product is patented or copyrighted. In recent years, changing business practices surrounding new technologies have put the legality of tying arrangements to the test. Although the Supreme Court still considers some tying arrangements as per se illegal, the Court actually uses a rule-of-reason analysis, requiring an analysis of foreclosure effects and an affirmative defense of efficiency justifications.
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