Corporate & Securities Law

Per se tying: Why no simple ?relative size of markets? test?

By Hanno Kaiser

Modern tying law is concerned with foreclosure in the tied product market, not customer exploitation in the tying product market. As a result, we require market power in the tying product market, because without market power, there’s nothing to be leveraged into the tied product market. But doesn’t the same logic suggest a requirement that the tying product market be at least 30% of the size of the tied product market? (Assuming, for convenience’s sake, that foreclosure of less than 30% is unlikely to significantly distort the competitive process.) Or put differently: If the tying market is less than 30% of the size of the tied market, then there’s no (per se) tying concern, irrespective of the defendant’s market power in the tying market. Because even if the defendant had 100% of the tying product market, and it imposed an airtight tie on its customers, it could foreclose no more than 30% of the customers in the (larger) tied product market. The chart below illustrates the concept.

In this example, A is a monopolist seller of a specialized lab tool that uses CD-ROMs. A requires its customers to buy standard CD-ROMs only from A, i.e., imposes a tie (e.g., for metering purposes). Some CD-ROM sales from B, D, and E to customer C will thus be foreclosed. But even if A has market power in the tying product market, the tie won?t make a dent in the huge, competitive market for CD-ROMs. Am I missing something?

Technorati Tags: tying, antitrust

Full post as published by Antitrust Review on December 08, 2007 (boomark / email).