Tying as Quality Control: A Legal and Economic Analysis

Abstract:     
Commentators have suggested that where two products are used in conjunction with one another (such as machines and aftermarket parts and service), tying good suppliers may establish a tie in order to protect the tying good's reputation for quality against the damaging effects of low-quality service. This article provides support for the courts' generally skeptical response to this explanation. In some circumstances purchasing inferior tied goods from independent suppliers may enhance the tying good's reputation and expected profits. In other circumstances externalities may arise that provide a quality-control rationale for tying; however, these externalities are imposed on the seller not by independent suppliers but by purchasers of the tied good. The article describes the conditions required for the quality-control explanation to be plausible and provides a context for the theory and its legal implications by examining a sample of U.S. tying cases.

Keywords: Tying, product quality

JEL Classifications: K21, L40, L15

Working Paper Series