Tying Meets the New Institutional Economics: Farewell to the Chimera of Forcing

Abstract:     
Antitrust law's traditional hostility toward tying contracts was premised upon a belief that all such contracts are the result of "coercive forcing," that is, the use of market power to compel acceptance of the agreement. Current law, while not as hostile as the traditional approach, still presumes that, where a seller possesses market power, any tying contract it obtains results from an exercise of that power.This article demonstrates that the economic premises underlying the traditional approach, as well as that of current law, are false. The New Institutional Economics ("N.I.E.") suggests that tying contracts are often designed to reallocate property rights so as to avoid market failures that would result if the purchaser chose which products to employ in conjunction with the tying product. Such contracts are formed through a contracting process that is unrelated to forcing, even if the seller possesses market power. Thus, the per se doctrine -- in its traditional or current form -- must be abandoned.Unlike the Chicago School critique of tying doctrine, the approach offered here takes as a given traditional normative premises about the goals of antitrust law, in particular, the assumption that "coercion" in the form of "forcing" should be condemned in its own right. Despite this assumption, N.I.E.'s analysis of tying contracts still counsels a retreat from the current version of the per se rule, which rests upon the illogical presumption that all tying contracts drafted by firms with market power constitute forcing.

working papers series