Duhaime's Law Dictionary


Tied Selling Definition:

Where a supplier sells on condition that the buyer to the purchase of another associated or "tied" product.

Related Terms: Exclusive Dealing, Vertical Restraint

Also known as tying as in tying arrangement or tying agreement.

Tying occurs when a manufacturer or distributor or service provider sells a product or services on the condition that the purchaser also purchase another (hence, "tied") product, or at least agree not to purchase that same product or service from any other supplier.

To the consumer, tied selling or a proposed tying arrangement often presents as bundling, where the distributor sells one major product or service but bundles it with one or more accessory product and service.

A 2007 American government report on antitrust law added:

"... nearly every item for sale arguably is composed of what could be viewed as distinct tied products, making tying one of the most ubiquitous business practices from an economic perspective.

"(N)ot all items are considered tied products. Case law requires two separate product markets for a tie to exist.

"Firms can tie through contracts and by bundling. Contractual ties often concern purchases made at different times....

"Once thought to be worthy of per se condemnation without examination of any actual competitive effects, tying currently is deemed per se illegal under U.S. Supreme Court rulings only if specific conditions are met, including proof that the defendant has market power over the tying product.(9) Further, the Supreme Court has recently recognized that competitive markets and tying arrangements are not incompatible. Indeed, some lower courts have required proof of likely or actual anticompetitive effects and efficiencies in tying cases."1

tying arrangement yard sale signIn Northern Pacific Railway Company v. United States (1958), the Supreme Court of the United States defined a tying arrangement as:

"...an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier."

Later, in the 1992 decision Eastman Kodak Co. v. Image Technical Services, that same Court added that a tying arrangement will violate American antitrust law (the Sherman Act) if:

"... the seller has appreciable economic power in the tying product market and if the arrangement affects a substantial volume of commerce in the tied market."

Mark Connelly wrote, in his 1976 article:

Tying or tied selling is the practice whereby the supplier of a product sells or leases that product (the tying product) upon condition that the purchaser or lessee agrees to take his requirements of some other product (the tied product) from that supplier or another designated by him.

"A tying arrangement, therefore, is a form of exclusive dealing that involves two distinct products.

"Frequently the tied product is something used in conjunction with the tying product, such as punch cards in a computer or paper in a photocopier.

"Where the supplier of the tied product is not the supplier of the tying product, but rather a source designated by the latter, the arrangement is referred to as directed buying. Directed buying usually implies some form of market access arrangement; whereby, in the most common form, the designated supplier of the tied product agrees to pay a commission to the supplier of the tying product on sales made to the latter's customers.

"An example of this type of arrangement would occur where firm X, an oil company, requires its service station dealers to stock exclusively (or predominantly) the tires manufactured by firm R, a rubber company. Under typical arrangements, firm R would pay a commission to firm X on all sales of tires by R to X's dealers.

"Where a tying arrangement takes the form of a supplier declining to furnish a dealer with one product unless the dealer will agree to stock other products made by the same supplier, it is called full-line forcing....

"In exclusive dealing, the supplier says to the customer "I will sell you my widgets only if you will buy all of your widgets from me"; in tying, the supplier says, "I will sell you my widgets only if you buy my gidgets."

In their 2006 antitrust and competition law book, Facey and Assaf used these words:
 

"Tied selling occurs where a supplier attaches a condition of supplying a product (the tying product) the requirement that a customer also purchase another product (the tied product), when they otherwise would not, or purchase that tied product on terms that customer would not otherwise accept.

"Alternatively, the tie may impose an obligation to refrain from using another supplier's product in the place of the proposed tying product.

"Tying arrangements attempt to leverage the desirability of one product into the consumption of another. Their potential harm is the exploitation of market power in one market to distort competition in another market by forcing consumers to buy the tied product when they otherwise would have purchased a competing product."

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