Electronic copy available at: http://ssrn.com/abstract=1999063 Tying Hovenkamp & Hovenkamp, page 1 March, 2012 The Law and Antitrust Economics of Tying Erik Hovenkamp * & Herbert Hovenkamp ** Introduction; Identifying Ties Tying arrangements, sometimes known as “ties,” “tie ins” “tied-in sales,” or “bundles,” occur when a firm offers two separate products together, refusing to sell one of them without the other. Identifying when two things are really a single product – such as a shirt and its buttons or an automobile and its tires – has proven controversial. The dominant position looks at ordinary business practices in order to determine whether the products are commonly sold separately. In its Jefferson Parish decision the Supreme Court held that the separate product inquiry depends “not on the functional relation” between two goods, but rather “on the character of the demand for them.” 1 This query requires the plaintiff to show simply that the two products are commonly sold separately under ordinary market conditions. As a result the “separate products” requirement serves mainly as a screening device to weed out frivolous cases involving goods (such as a right shoe and a left shoe) that are rarely sold separately. 2 This definition is in contrast to a more substantive one that a single product should be found when there are “rather obvious economies of joint provision.” 3 That test would merge a test for efficiency, otherwise a defense, into the definition of separate products. Ties can come in one-way and two-way varieties. For example, Baskin-Robbins as franchisor might insist that its franchisees sell its own Baskin-Robbins brand ice cream; however, it might willingly sell the ice cream alone to independent retailers or consumers. Two- way ties are sometimes referred to as “bundles.” In a one-way tie we can readily speak of a “tying product” (e.g., the Baskin-Robbins franchise) and a “tied product” (the ice cream). In a * Graduate School, Economics, Northwestern University ** Ben V. & Dorothy Willie Professor of Law, University of Iowa 1 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 19 (1984). 2 See, e.g., Reisner v. GM Corp., 511 F.Supp. 1167 (S.D.N.Y. 1981), aff‟d 671 F.2d 91 (2d Cir.), cert. denied, 459 U.S. 858 (1982) (automobile manufacturer refused to sell drive train components separately from car; same product). See Areeda & Hovenkamp (2011), ¶¶1741- 1751. 3 Jack Walters & Sons Corp. v. Morton Bldg., Inc., 737 F.2d 698, 703 (7th Cir.1984). Four Justices in Jefferson Parish concurred in this view: "When the economic advantages of joint packaging are substantial the package is not appropriately viewed as two products, and that should be the end of the tying inquiry." 466 U.S. at 40-41.