A Comprehensive Economic and Legal Analysis of Tying Arrangements

Authors

Guy Sagi

Abstract

The law of tying arrangements as it stands does not correspond with modern economic analysis. Therefore, and because tying arrangements are so widely common, the law is expected to change and extensive academic writing is currently attempting to guide its way. In tying arrangements, monopolistic firms coerce consumers to buy additional products or services beyond what they intended to purchase. This pressure can be applied because a consumer in a monopolistic market does not have the alternative to buy the product or service from a competing firm. In the absence of such choice, the monopolistic firm can allegedly force the additional purchase on the consumer at non-beneficial terms. The "tying product" is the one the consumer wants to buy, and the product the firm attaches to the tying product is termed the "tied product." Thus, the monopolistic firm could theoretically extend its period of monopoly. These concerns led the Supreme Court to impose severe restrictions on tying arrangements employed by monopolistic firms. However, as this Article shows, modern economic analysis reveals that the concern was probably exaggerated, and more importantly, that tying arrangements may have significant pro-competitive efficiency justifications. This Article presents a comprehensive economic analysis that demonstrates that tying arrangements, despite their anticompetitive potential, also hold exceedingly significant pro-competitive efficiency potential. It then presents the potential legal rules for analyzing tying arrangements and the two leading approaches in academic writing regarding their appropriate implementation before discussing various tying scenarios and presenting a position regarding their appropriate legal analyses.

Recommended Citation

Guy Sagi, A Comprehensive Economic and Legal Analysis of Tying Arrangements, 38 SEATTLE U. L. REV. 1 (2014).