Author(s)
David S. Evans, Jorge A. Padilla and Michael A. Salinger
Source
Chapter in European Competition Law Annual 2003: What is an Abuse of a Dominant Position?, Claus Dieter Ehlermann and Isabela Atanasiu, Eds., Hart Publishing
Summary
This paper looks at how courts view “tying”, a common business practice.
Policy Relevance
Courts will make mistakes, so rules should be structured to avoid the worst kind of mistakes. In competition policy, markets usually erode monopoly power over time, so a rule that ambiguous business practices are okay does less harm than a rule that assumes close cases hurt consumers.
Main Points
- When a firm requires customers to purchase product B when they buy product A, it is called “tying.” For many years, courts assumed that tying hurt consumers (per se illegal).
- Economists agree that tying is common and can benefit consumers.
- A review of 11 tying cases shows that false positives happen often under a per se illegality test, condemning business practices that help consumers.
- False negatives, when a tying firm gets away with questionable behavior, are usually corrected over time by the market.
- Courts should take a “rule of reason” approach that looks at each tying case to see if consumers are helped or hurt.
- Courts should screen out cases where the tying firm has little market power or when it is implausible that consumers are hurt, and in close cases should assume tying is beneficial.
