Author(s)
David S. Evans, Jorge A. Padilla and Michele Polo
Source
World Competition: Law and Economics Review, Vol. 25, Issue 4, 2002
Summary
This paper looks at whether a common business practice hurts or helps consumers of software.
Policy Relevance
Antitrust rules should be updated to reflect the economic consensus that tying is not usually harmful, or consumers will be hurt.
Main Points
- Tying is when a firm requires customers to purchase product B when they buy product A. Bundling is when a firm encourages customers to buy both products, perhaps by offering a discount.
- In the United States and Europe, Microsoft was prosecuted for tying application software to the Windows operating system.
- Selling products together benefits consumers because it:
- Lowers producers’ costs.
- Adds value for users.
- Makes it easier for others to develop related applications.
- Because tying is unlikely to be harmful, regulators should look at each case to see if consumers are actually, on balance, harmed (the “rule of reason” approach).
