The Economics of Tie-in Sales

Abstract

A tie-in sale or lease is ordinarily defined as one in which the seller of the `tying' good requires that one or more other goods used with the tying good also be purchased from him. However, I intend to use the term more broadly and define a tie-in sale as one which simply requires that the purchaser of the tying good purchase his `requirements' of one or more `tied' goods from the seller of the tying good. Since I do not treat tie-ins requiring purchase of specific quantities of tied goods, it could be said that this study is essentially concerned with full-line forcing. An important conclusion of the study is that complementarity of the tied with the tying good is not essential to the rationale of a tie-in sale; all of the major results can be derived on the assumption that the tying and tied goods are independent in demand in the sense that ∂xi/∂pj= 0. The tying arrangement is seen as a means of extracting the profit inherent in an `all or nothing' selling arrangement and can be analyzed in very general terms.2 The model is static; the study shows that tying arrangements can be viewed in a context apart from extension of monopoly or exclusion of entry. Of course, it does not follow that tying arrangements cannot be viewed dynamically. On the other hand, it is submitted that there are, for example, many cases of full-line forcing that cannot be explained by any hypothesis thus far advanced.