Tying (commerce) - Criticism of Laws Banning Tying

Criticism of Laws Banning Tying

Scholars from various schools of antitrust policy have been consistently critical of the per se rule against tying contracts. Some, particularly those in the Chicago School of economic thought, argue that such contracts are generally employed to effect otherwise lawful price discrimination. Chicagoans have also argued that a firm with power in the market for the tying product cannot enhance its profit by employing power over the tying product to gain influence in the market for the tied product. Thus, these scholars assumed that firms employed market power to impose tying contracts, but that such contracts were nonetheless harmless or even beneficial.

Other scholars argue that ties can be methods of overcoming market failures that unbridled rivalry might otherwise produce. For instance, some economists have argued that a franchiser may employ tying contracts to ensure that franchisees with little repeat business purchase inputs of sufficient quality. Absent such agreements, it is said, some franchisees will have an incentive to use the franchise system's trademark to lure unsuspecting customers and then provide the customer substandard service, to the detriment of the reputation associated with the trademark. These scholars argue that courts should analyze tying contracts under the Rule of Reason.