Tying is the practice of making the sale of one good (the tying good) to the de facto or de jure customer conditional on the purchase of a second distinctive good (the tied good). A classic example of de facto tying is the selling of razors at a loss and making the profit on the blades. It is illegal when the products are not naturally related, e.g., requiring a bookstore to stock up on an unpopular title before allowing them to purchase a bestseller. A good in economics is any physical object (natural or man-made) or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. ... De facto is a Latin expression that means in fact or in practice. It is commonly used as opposed to de jure (meaning by law) when referring to matters of law or governance or technique (such as standards), that are found in the common experience as created or developed without... Look up De jure in Wiktionary, the free dictionary. ...

Some kinds of tying, especially by contract, have historically been regarded as anti-competitive as it is implied in this that one or more components of the package are sold individually by other businesses as their primary product, and thereby this bundling of goods would hurt their business. It is also implied that the company doing this bundling has a significantly large market share so that it would hurt the other companies who sell only single components. Anti-competitive practices are business or government practices that prevent and/or reduce competition in a market. ...

Middle managers who oversee less attractive product lines are frequently responsible for initiating or attempting to initiate the tying of their products to higher quality products in the company's portfolio as a desperate effort to prevent the extinction of the product line and their job. Laws against tying are designed to redirect the energies of such managers towards more constructive efforts like improving the quality of their product line to make it more attractive. Most scholars agree that such laws are well-founded and rooted in sound economic, managerial, and legal reasoning because they can serve to redirect a manager's energies towards more useful and productive behaviors.^{[citation needed]}

Tying may also be a form of price discrimination: people who use more blades, for example, pay disproportionately 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 transfers consumer surplus to the producer. Tying may also be used with or in place of patents or copyrights to help protect entry into a market, encouraging innovation. Price discrimination exists when sales of identical goods or services are transacted at different prices from the same provider. ... A patent is a set of exclusive rights granted by a state to a patentee for a fixed period of time in exchange for a disclosure of an invention. ... Copyright symbol Copyright is a set of exclusive rights regulating the use of a particular expression of an idea or information. ...

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.

Most states have laws against tying, which are enforced by state governments. In addition, the US Department of Justice enforces federal laws against tying through its anti-trust division: http://www.usdoj.gov/atr/.

Types of tying

Horizontal tying is the practice of requiring customers to pay for an unrelated product or service together with the desired one, for example, if all of Bic's pens came with Bic lighters. Bic logo Société Bic is a company based in Clichy, France, founded in 1945, best known for making inexpensive disposable products including cigarette lighters, magnets, ballpoint pens, and shaving razors. ...

Vertical tying is the practice of requiring customers to purchase related products or services from the same company. For example, a company's automobile only runs on its own proprietary gas and can 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. More recently, video game consoles run only software licensed by the console manufacturer and use lockout chips to enforce this. Proprietary indicates that a party, or proprietor, exercises private ownership, control or use over an item of property, usually to the exclusion of other parties. ... The Magnuson-Moss Warranty Act is a United States federal law ( ). Enacted in 1975, it is the federal statute that governs warranties on consumer products. ... A video game console is an interactive entertainment computer or electronic device that manipulates the video display signal of a display device (a television, monitor, etc. ...

By some accounts, Microsoft ties together Microsoft Windows, Internet Explorer, Outlook Express and Microsoft Office. Microsoft's view of it is that a web browser and a mail reader are simply part of an operating system (and are included with all other personal computer operating systems). Just as the definition of a car has changed to include things that used to be separate products, such as speedometers and radios, the definition of an operating system has changed to include those formerly separate products. However, the District of Columbia Circuit Court of Appeals rejected Microsoft's claim that Internet Explorer was simply one facet of its operating system. At the same time, the court held that the tie between Windows and Internet Explorer should be analyzed under the Rule of Reason. See United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001). As to the tying of Office, State Attorney Generals originally included a claim for harm for a market for office productivity applications in the complaint they filed. (See Complaint filed in New York v. Microsoft Corp. PP 88-95, 98, 117-19, No. 98-1233 (D.D.C. filed May 18, 1998)); the Attorney Generals abandoned that claim when filing an amended complaint. The claim was revived by Novell where they alleged that computer OEMs were charged less for their Windows bulk purchases if they agreed to bundle Office with every PC sold but that if they gave computer purchasers the choice whether or not to buy Office along with their machines, the OEM's bulk prices for Windows would rise, making their computer prices less competitive in the market. The Novell litigation is still ongoing. See Civil No. JFM-05-1087. Microsoft Corporation, (NASDAQ: MSFT, HKSE: 4338) is a multinational computer technology corporation with global annual revenue of US$44. ... Microsoft Windows is the name of several families of proprietary software operating systems by Microsoft. ... Windows Internet Explorer (formerly Microsoft Internet Explorer, abbreviated MSIE), and commonly abbreviated to IE, is a series of proprietary graphical web browsers developed by Microsoft and included as part of the Microsoft Windows line of operating systems starting in 1995. ... For the personal information manager included in the Microsoft Office suite, see Microsoft Outlook. ... Microsoft Office is an office suite from Microsoft, which is available on the Microsoft Windows and Apple Mac OS X operating systems. ... An example of a web browser (Internet Explorer), displaying the English Wikipedia main page. ... // An operating system (OS) is a set of computer programs that manage the hardware and software resources of a computer. ... This article or section does not cite its references or sources. ... Speedometer gauge on a car, showing the speed of the vehicle in miles and kilometres per hour on the out– and inside respectively. ... The rule of reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. ... United States v. ...

Tying may be the action of several companies, as well as the work of just one firm.

Tying was first made potentially illegal in the United States by the Sherman Antitrust Act. Section 1 of the act prohibits tying if the firm has "economic power" in the tying good, and a "non-trivial" amount of business is affected by the tying. See Northern Pacific Ry v. United States, 356 U.S. 1 (1958); International Salt Co. v. United States, 332 U.S. 392 (1947). For at least three decades, the Supreme Court defined "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. See Fornter Enterprises v. United States Steel, 394 U.S. 495 (1969); United States v. Loew's, Inc. 372 U.S. 38 (1962). More recently, the Supreme Court has held that a plaintiff must establish the sort of market power necessary to other antitrust violations in order to show the sort of "economic power" necessary to establish a per se tie. See Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1985). The Sherman Antitrust Act, formally known as the Act of July 2, 1890, ch. ... Holding --- Court membership Case opinions Laws applied Sherman Act, 15 U.S.C. § 1 International Salt Co. ... // The United States Reports, the official reporter of the Supreme Court of the United States Case citation is the system used in common law countries such as the United States, England and Wales, Ireland, Canada, New Zealand, Hong Kong, Australia and India to uniquely identify the location of past court... Year 1947 (MCMXLVII) was a common year starting on Wednesday (link will display full 1947 calendar) of the Gregorian calendar. ...

Criticism of laws banning tying

Scholars from various schools of antitrust policy have been consistently critical of the per se rule against tying contracts. Some, particularly those in the Chicago School of economic thought, argue that such contracts are generally employed to effect otherwise lawful price discrimination. Chicagoans have also argued that a firm with power in the market for the tying product cannot enhance its profit by employing power over the tying product to gain influence in the market for the tied product. Thus, these scholars assumed that firms employed market power to impose tying contracts, but that such contracts were nonetheless harmless or even beneficial. The Chicago School of Economics is a school of thought in economics; it refers to the style of economics practiced at and disseminated from the University of Chicago after 1946. ...

Other scholars argue that ties can be methods of overcoming market failures that unbridled rivalry might otherwise produce. For instance, some economists have argued that a franchiser may employ tying contracts to ensure that franchisees with little repeat business purchase inputs of sufficient quality. Absent such agreements, it is said, some franchisees will have an incentive to use the franchise system's trademark to lure unsuspecting customers and then provide the customer substandard service, to the detriment of the reputation associated with the trademark. These scholars argue that courts should analyze tying contracts under the Rule of Reason. Market failure is a term used by economists to describe the condition where the allocation of goods and services by a market is not efficient. ... Franchising (from the French for honesty or freedom[1]) is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well... For other senses of this word, see Trademark (disambiguation). ... The rule of reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. ...

See also

• Complementary good
• Iunctim
• Loss leader
• Product bundling
• Product churning
• Vendor lock-in

A complement good (or complementary good) is a good that should be consumed with another good. ... The Latin word iunctim (also spelled junctim) is the legal term for the connection of rules or conditions, which could be seen as independent. ... In marketing, a loss leader is an item that is sold below cost in an effort to stimulate other profitable sales. ... Product bundling is a marketing strategy that involves offering several products for sale as one combined product. ... Product churning is the practice of selling more product than is beneficial to the consumer. ... In economics, vendor lock-in, also known as proprietary lock-in, customer lock-in, lock-in is where a customer is dependent on a vendor for products and services and cannot move to another vendor without substantial switching costs, real and/or perceived. ...

Bibliography

• Donald Turner, Tying Arrangements Under the Antitrust Laws, 72 Harv. L. Rev. 50 (1958);
• George J. Stigler, A Note On Block Booking, 1963 Supreme Court Review 152;
• Kenneth Dam, Fortner Enterprises v. United States Steel: Neither a Borrower Nor A Lender Be, 1969 S. Ct. Rev. 1;
• Richard A. Posner, Antitrust: An Economic Perspective, 171-84 (1976);
• Joseph Bauer, A Simplified Approach to Tying Arrangements: A Legal and Economic Analysis, 33 Vanderbilt Law Review 283 (1980);
• Richard Craswell, Tying Requirements in Competitive Markets: The Consumer Protection Rationale, 62 Boston University L. Rev. 661 (1982);
• Roy Kenney and Benjamin Klein, The Economics of Block Booking, 26 J. Law & Economics 497 (1983);
• Victor Kramer, The Supreme Court and Tying Arrangements: Antitrust As History, 69 Minnesota L. Rev. 1013 (1985);
• Benjamin Klein and Lester Saft, The Law and Economics of Franchise Tying Contracts, 28 J. Law and Economics 245 (1985);
• Alan Meese, Tying Meets The New Institutional Economics: Farewell to the Chimera of Forcing, 146 U. Penn. L. Rev. 1 (1997);
• Christopher Leslie, Unilaterally Imposed Tying Arrangements and Antitrust's Concerted Action Requirement, 60 Ohio St. L.J. 1773 (1999);
• John Lopatka and William Page, The Dubious Search For Integration in the Microsoft Trial, 31 Conn. L. Rev. 1251 (1999);
• Alan Meese, Monopoly Bundling in Cyberspace: How Many Products Does Microsoft Sell?, 44 Antitrust Bull. 65 (1999);
• Keith A. Hylton and Michael Salinger, Tying Law and Policy: A Decision-Theoretic Approach, 69 Antitrust L. J. 469 (2001);
• Michael D. Whinston, Exclusivity and Tying in U.S. v. Microsoft: What We Know, and Don't Know, 15 Journal of Economic Perspectives, 63-80 (2001);
• Christopher Leslie, Cutting Through Tying Theory with Occam's Razor: A Simple Explanation of Tying Arrangements, 78 Tul. L. Rev. 727 (2004).