Should Antitrust Condemn Tying Arrangements that Increase Price Without Restraining Competition?

Steven Semeraro

Responding to Einer Elhauge, Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harv. L. Rev. 397 (2009)

In his article Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, Professor Einer Elhauge attempted to demonstrate that tying, the practice whereby a firm conditions the sale of one product on the customer’s agreement to purchase another, always harms consumers. He determined that antitrust law should prohibit tying even when that tying did not restrain competition in the tied product’s market. In this response, Professor Steven Semeraro argues that this form of tying actually benefits consumers in the long term. He contends that although a tying firm may temporarily charge supracompetitive rates, the very opportunity to capture large consumer surplus encourages rival firms to “invest in innovative activities.” Relying in part on the work of economists Dennis Carlton and Ken Heyer, Professor Semeraro contends that the prospect of a windfall provides firms with the incentive to invest in innovation and to stimulate competition in the market. While consumers must bear higher prices in the short term, those consumers may later enjoy the products of a more competitive market. Professor Semeraro concludes that this matter requires further empirical study.

123 Harv. L. Rev. F. 30 (2009) | DOWNLOAD PDF