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Tying sales happen when a customer is required to buy one product only if the customer also buys a second product. Tying sales are controversial because they force consumers to purchase a product that they may not actually want or need. Further, the additional, required products are not necessarily advantageous to the customer. Suppose that to purchase a popular DVD, the store required that you also purchase a portable TV of a certain model. These products are only loosely related, thus there is no reason to make the purchase of one contingent on the other. Even if a customer was interested in a portable TV, the tying to a particular model prevents the customer from having the option of selecting one from the numerous types available in the market. A related, but not identical, concept is called bundling    , where two or more products are sold as one. Bundling typically offers an advantage for the consumer by allowing them to acquire multiple products or services for a better price. For example, several cable companies allow customers to buy products like cable, internet, and a phone line through a special price available through bundling. Customers are also welcome to purchase these products separately, but the price of bundling is usually more appealing.

In some cases, tying sales and bundling can be viewed as anticompetitive. However, in other cases they may be legal and even common. It is common for people to purchase season tickets to a sports team or a set of concerts so that they can be guaranteed tickets to the few contests or shows that are most popular and likely to sell out. Computer software manufacturers may often bundle together a number of different programs, even when the buyer wants only a few of the programs. Think about the software that is included in a new computer purchase, for example.

Recall from the chapter on Monopoly that predatory pricing    occurs when the existing firm (or firms) reacts to a new firm by dropping prices very low, until the new firm is driven out of the market, at which point the existing firm raises prices again. This pattern of pricing is aimed at deterring the entry of new firms into the market. But in practice, it can be hard to figure out when pricing should be considered predatory. Say that American Airlines is flying between two cities, and a new airline starts flying between the same two cities, at a lower price. If American Airlines cuts its price to match the new entrant, is this predatory pricing? Or is it just market competition at work? A commonly proposed rule is that if a firm is selling for less than its average variable cost—that is, at a price where it should be shutting down—then there is evidence for predatory pricing. But calculating in the real world what costs are variable and what costs are fixed is often not obvious, either.

The Microsoft antitrust case embodies many of these gray areas in restrictive practices, as the next Clear it Up shows.

Did microsoft ® Engage in anticompetitive and restrictive practices?

The most famous restrictive practices case of recent years was a series of lawsuits by the U.S. government against Microsoft—lawsuits that were encouraged by some of Microsoft’s competitors. All sides admitted that Microsoft’s Windows program had a near-monopoly position in the market for the software used in general computer operating systems. All sides agreed that the software had many satisfied customers. All sides agreed that the capabilities of computer software that was compatible with Windows—both software produced by Microsoft and that produced by other companies—had expanded dramatically in the 1990s. Having a monopoly    or a near-monopoly is not necessarily illegal in and of itself, but in cases where one company controls a great deal of the market, antitrust regulators look at any allegations of restrictive practices with special care.

The antitrust regulators argued that Microsoft had gone beyond profiting from its software innovations and its dominant position in the software market for operating systems, and had tried to use its market power in operating systems software to take over other parts of the software industry. For example, the government argued that Microsoft had engaged in an anticompetitive form of exclusive dealing by threatening computer makers that, if they did not leave another firm’s software off their machines (specifically, Netscape’s Internet browser), then Microsoft would not sell them its operating system software. Microsoft was accused by the government antitrust regulators of tying together its Windows operating system software, where it had a monopoly, with its Internet Explorer browser software, where it did not have a monopoly, and thus using this bundling as an anticompetitive tool. Microsoft was also accused of a form of predatory pricing; namely, giving away certain additional software products for free as part of Windows, as a way of driving out the competition from other makers of software.

In April 2000, a federal court held that Microsoft’s behavior had crossed the line into unfair competition, and recommended that the company be broken into two competing firms. However, that penalty was overturned on appeal, and in November 2002 Microsoft reached a settlement with the government that it would end its restrictive practices.

The concept of restrictive practices is continually evolving, as firms seek new ways to earn profits and government regulators define what is permissible and what is not. A situation where the law is evolving and changing is always somewhat troublesome, since laws are most useful and fair when firms know what they are in advance. In addition, since the law is open to interpretation, competitors who are losing out in the market can accuse successful firms of anticompetitive restrictive practices, and try to win through government regulation what they have failed to accomplish in the market. Officials at the Federal Trade Commission and the Department of Justice are, of course, aware of these issues, but there is no easy way to resolve them.

Key concepts and summary

Firms are blocked by antitrust authorities from openly colluding to form a cartel that will reduce output and raise prices. Companies sometimes attempt to find other ways around these restrictions and, consequently, many antitrust cases involve restrictive practices that can reduce competition in certain circumstances, like tie-in sales, bundling, and predatory pricing.

Questions & Answers

what is inflation
Sama Reply
inflation is the general price increase of goods and services in an economy.
tesfie
Inflation is the persistent rise in the general price level
T-Max
inflation is characterized by increase in the general price of goods and services. when there is too much money in circulation. increase in demand of goods pursuing fewer goods. when purchasing power of money decreases .
Ejikeme
inflation is the persistent rise general price level
Habeeb
inflation is the persistent increase in price
Machall
different between demand and quantity demand
Farhan Reply
No difference
MansoorAfghan
demand is the overall demand for it
MansoorAfghan
actually theres no difference
MansoorAfghan
quantity demanded is used in Equilibrium of d and s
MansoorAfghan
for evrything else u use deman
MansoorAfghan
how to calculate inflation
Richard Reply
Explain the factors that have led to high quantity demanded
Ogwang Reply
price of the product increase of price substitute product as people shift to cheap one
Black
what are the methods used by trade union to increase wages of their members?
Black Reply
strike
Pearl
the size of the commodity
Mensah
increase demand of labour decrease supply of labour
Black
I do support your answer Jackel.
keshav
but how do they do it?
Black
by increasing more labour and reduced the suppliers
Mensah
they can not increase labour, they increase demand of labour.
Black
how do they increase demand for labor?
Black
by analyzing the market equilibrium , cost reduction and cost control , savings in time .
yash
decreasing supply of labour are achieved through training and certification that require for you to employed, you must have certificate, also trade union encouraged government to restrict migration into the country causing shortage of labour supply. Note that the aim of union is to enhance life
Black
objective of union: better working conditions, liveable wage, protect member from unfair treatment which are done through negotiations betweens representative and management. known as collective bargaining.
Black
what is the nature of economics?
Tyscar Reply
economics is a social science since it seeks to solve social problem of scarcity
Jamal
main concerns is the decision individuals make on the allocation of scarce resources among the competing wants
Black
in the short run firm produce a positive as long as the price is larger than what?
yoel Reply
what is economic
Bah Reply
economics is the study of managing the resources in order to maximize the needs and satisfy the wants to a great extent in a regulated set-up..
Muhammad
One explanation for deviation when there is no impact on balance of trade
Shaneel
economic s is a social science that deals with human behavior as a relationship between ends and scarce means which has alternative uses
Derokiz
economic is a study of mankind in ordinary business of life
FIDELIS
economics it is the study of social science that deals with human behaviour as relationship between ends and scarce means which have alternative uses
salam
what is diminishing returns
Blessed Reply
what is the difference between calculus linear equation and derivative?
Bti
whats inferior goods?
jaamac Reply
Good having low quality , also known as giffin goods. When income increases people shift to better quality goods . Hence having a negative effect on inferior goods rather than positive relation ( ie when income increases demand increases but not in case of inferior goods ) example wheat and bajra .
yash
What do u understand by the word ENDS in professor Lord L C Robinson definition of Economics?
Kaba Reply
I understand that ENDS is the unlimited needs of human. But we have limited resources to achieve our unlimited needs/wants. Thank you.
Midhun
variable is a factor that can change
nyodb Reply
did you understand definition of variablE
nyodb
what is monopoly
Shahid Reply
A market situation where there is a single seller of a product for the buyers.
harmony
monopoly is when you have a product in the market and only one supplier got this product so he starts rising price and dominate the market, cause this product doesn't have a competitor
Anas
A market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.
Jale
This is a kind of market that only one seller dominate the market without no competition of a y product or seller.
Ojo
what is production possibility curve?
Lisa
a production possibility curve is a diagram that shows two goods produced in an economy in such a way that increase in the production of one good cannot be done without the decrease on the production of the other. there are efficient points, inefficient points and unattainable points on the PPC
The
production possibility curve or frontier is useful analytical tool for illustrating the concepts of scarcity, choice and opportunity costs.
wilflay
The International Year of Soils, 2015 (IYS 2015) was declared by the Sixty-eighth session of the United Nations General Assembly on December 20th, 2013 after recognizing December 5th as World Soil Day.The purpose of the IYS is to raise awarenessworldwide of the importance of soils for food security,
what
what is indifference curve
Evet
Monopoly is the explicit right given to business or entrepreneurship by the government to operate as the only entity in the economy
wilflay
what is economic system ?
wilflay
economical matter solve this system is know as economic system
what
indifference curve is a diagram that shows the combination of only 2 commodities in such a way that each point on the indifference curve gives the same level of satisfaction
The
all consumer is equal consumtion as definite all ..that type curve is indifference curve
what
what is variable?
Rajeev
economic structure of any area is ,city or country is called economic system
Jairam
what is the difference between rational and irrational choice
Amina
help
Amina
Rational choice theory is an economic principle that assumes that individuals always make prudent and logical decisions that provide them with the highest amount of personal utility. ... Most mainstream academic assumptions and theories are based on rational choice theory.
Anas
Irrationality is cognition, thinking, talking, or acting without inclusion of rationality. It is more specifically described as an action or opinion given through inadequate use of reason, or through emotional distress or cognitive deficiency.
Anas
help
Mensah
The meaning of inverse
Mensah
?
Anas
inverse what ? inverse means opposite .. like if ones going down other goes up so inverse relationship
MansoorAfghan
Definition of Inversely Related: Two variables are inversely related when an increase in one variable causes a reduction in the other variable. For example, when the price of a good increases, its quantity demanded decreases.
Anas
what is opotunity cost
salam
is an alternative forgone after the best choice have been selected.for example when you have cocacola and pepsi and you choose cocacola oportunity cost will be pepsi
Amin
explain the meaning of price cealing and price floor..?
Amin
Opportunity cost is the cost express in terms of forgone, alternatives after a choice have been made.
cyril
A price ceiling is the maximum price a seller can legally charge a buyer for a good or service. Consumers must not pay a price above the pries ceiling
Ntui
A price floor is that is imposed to protect consumers it can not be above the equilibrium price. It's the lowest price that producers must accept from a sales
Ntui
A price ceiling is a price control mechanism issued by the government to protect the consumers from high-priced commodities. It goes to set the highest amount a seller can charge per unit quantity of his product. N.B: This price mechanism isn't binding if equilibrium exists.
harmony
A price floor is a price control mechanism that seeks to protect the sellers by setting the lowest amount a seller can receive for his products. In this case, a seller will not sell his products for any amount less than the price floor amount.
harmony
It is argued that under optimization, since there is the second-order sufficient condition, the first-order condition is not necessary. Discuss.
John Reply
It is argued that in optimization the first part of second order condition appears opposite to their interpretation. Explain why you think otherwise.
John
Would you expect the kinked demand curve to be more extreme (like a right angle) or less extreme (like a normal demand curve) if each firm in the cartel produces a near-identical product like OPEC and petroleum? What if each firm produces a somewhat different product? Explain your reasoning.
Shauna Reply
we need to understand the things that manufacturer industies need to overcome the change of price, including all the all factors
Franck
hi
Jale
I expect the demand curve of such a case to be less extreme almost a horizobtal line.
tesfie
hi
Hashim
Hi
Prajwal
hi to
Sarparah
hello
Kaba

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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