Question

Create a policy memo detailing the pro and anticompetitive effects of tying. After your analysis, provide a recommendation on the general policy approaches that should be used in enforcement practices. In your opinion, are some approaches better than others? Why?

Answer 1

POLICY MEMORANDUM

[Anti Competitive Effects of Tying]

[ Memo Number : ****]

Year : 2019

Subject :- Pros and Cons of Tying

Date :- 02 December, 2019

To :------

From : ------

Summary :-

Time is a policy of a seller of a product that requires his purchases to take another product as well . For example , hotels offer breakfast in their package. Some of the major benefits of tying is that it reduces the production cost, transaction cost ,information cost and provide consumers with better convenience and more variety of products.

However the above statement it is not true in all cases specially in a Monopoly power market where tying leads to exclusion and suppression of competition which is not so beneficial to consumer. Therefore it can be inferred that absence of separate demand undivided market power a sufficient conditions for tying to have anti competitive effects.

Recommendations :-

Keeping a regulatory check on tying by proper authorities could balance the anti competitive effect where this approach harms the consumer instead of creating efficiency in the market. The attachment of condition to end time agreement that the buyer purchase a different product not purchase that product from any other supplier could reduce the harmful effects curbing competition in the market. However it should be made sure that the consumers are not forced to purchase the tied product.

Thus we can summarise that controlled tying agreement can increase the Welfare effects in the market by reduction in transaction cost ,giving Economics of scale, reduction and production and distribution cost , product improvement, quality assurance and pricing efficiencies. However authoritative and corrective measures should be taken in order to reduce the the anti competitive effects of tying that include undivided market power ,exclusion of competition ,entry barriers and absence of buying power .