Tied sales consist of the strategy of offering a product (tying or tied), conditioning the transaction to the acquisition of another good (tied or tied).
Tied sales can be justified for reasons related to the quality, reputation or good use of the products or services.
Thus, for example, a printer manufacturer can sell its products on the condition that they also buy inks that it manufactures. The producer could justify this requirement by pointing out that their inks ensure optimum performance and quality of the print.
Another example of tied selling is when a telephone company is dominant in the Internet provision market and requires that consumers also purchase fixed telephone service.
Tied sales and competition
Through the tied sales strategy, a bidder can try to use its power in one sector to secure an advantage in another market where there is greater competition.
For example, going back to the telecommunications case mentioned above, it may be that a company has the largest share among Internet providers. Then, it forces its clients to acquire the fixed telephony service to increase their share in that other market.
On the other hand, with tied sales, in addition, a firm can reduce the number of potential consumers for its competitors. This can cause companies to exit the market and create barriers to entry.
In other words, not only could companies withdraw from the business in question, but the entry of new companies would be discouraged. Then, the level of competition would decrease, affecting the consumer because they would have fewer alternatives from which to choose.
Conditions for tied sales to be anti-competitive
There are several conditions that must be met for tied sales to be potentially anti-competitive:
- The company that carries out the strategy is dominant in the market for the tying product.
- The products to be bought together are different from a technical point of view and from a consumer perspective.
- The strategy has a high probability of distorting the market because the affected segment is significant.
- The strategy is not justified for efficiency reasons.
- Consumers are effectively forced to buy the two bundled products.