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Unfit to Be Tied: An Analysis of Trident v. Independent Ink

28 Pages Posted: 3 Aug 2007  

Barry J. Nalebuff

Yale University - Yale School of Management; Yale University - Cowles Foundation

Date Written: July 31, 2007

Abstract

In Illinois Tool Works and Trident v. Independent Ink, the Supreme Court overturned its longstanding per se rule against tied sales by a firm with a patent. Henceforth, market power will have to be demonstrated, whether or not the firm has a patent. Upon such demonstration, a tied sales contract will still be a per se antitrust violation. Our review of the case raises the question of why firms engage in tied sales and what is the antitrust issue. While the courts have focused on the leverage of market power, this case suggests a different concern: with complementary goods (such as a printer and ink), tying is used to engage in price discrimination via metering. The antitrust issue is that consumers will be harmed because the firm, by metering, is able to be a more effective monopolist and thereby extract more of the consumer surplus. And while perfect price discrimination may be efficient, there is no presumption that more imperfect price discrimination improves efficiency. As for the legitimate objectives, such as risk sharing, they can be met via direct metering. This suggests the wisdom of maintaining the per se rule against tied contracts when market power has been demonstrated.

Keywords: Antitrust, Bundling, Chicago School, Metering, Price Discrimination, Tying

JEL Classification: K21, L12, L13, L14, L41, L44, D42, D43

Suggested Citation

Nalebuff, Barry J., Unfit to Be Tied: An Analysis of Trident v. Independent Ink (July 31, 2007). Yale School of Management, Research Paper. Available at SSRN: https://ssrn.com/abstract=1004087

Barry Nalebuff (Contact Author)

Yale University - Yale School of Management ( email )

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Yale University - Cowles Foundation ( email )

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HOME PAGE: http://barrynalebuff.com

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