Tied and True Exclusion: Comment on Jean Tirole’s “The Analysis of Tying Cases”

Barry Nalebuff, Apr 01, 2005

The takeaway point of Tirole’s excellent primer is that tying, while potentially exclusionary, does not deserve special treatment. This commentary offers two reasons why tying should be accorded special treatment. First, unlike predatory pricing, tying offers a monopolist the ability to engage in no-cost predation. A critical component of the predatory pricing test is that the monopolist will be able to later recoup its sacrificed profits. If foreclosure can be accomplished without pricing below cost, then this makes tying a potentially more dangerous tool for anticompetitive conduct. Second, tying allows a firm to leverage its monopoly from one market to another. It can exclude an equally efficient competitor, where the rival has all of the same economies of scale and scope. To the extent that tying allows a monopolist to disrupt competition in a large number of adjacent or even unrelated markets, this vastly increases the potential harm caused by a monopoly.