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Tying

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Definition: Tying is the vendor practice of requiring customers of one product to buy others.

Tying can be said to impede trade in that the customer's choices are restricted. If the customer were free to buy the product without further conditions, the customer would apparently be better off than if the product has strings attached. Tying could, however, be efficiency-enhancing by (1) reducing the number of market transactions (an efficiency of scale), or by (2) enabling a work-around of a regulation, such as offering a bargain in conjunction with a price-controlled product.

A historical example: years ago lessees of IBM mainframes had to agree to buy punch cards only from IBM. Those punch cards were sold at a higher price than on the open market. So the customer would have been better off with the same contract minus this clause. But one could argue that tying the products this way improved competition. It could be that IBM was trying to charge heavy users of the computer more than light users by putting a surcharge on the punch cards. If so, IBM found a way to bill customers for one of its costs, computer maintenance. The practice would theoretically encourage customers to optimize their use of the computer rather than use it excessively. In this case the practice might be pro-competitive.

(Econterms)

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