Tie-in sales are a sneaky way for companies to upsell you on another product or service. If they have your contact information and know that you're interested in buying one thing, they'll try to sell you something else too. They might even say it's free. Don't fall for this trap! Read this article and learn how to avoid tie-in sales before making any purchases.
Tie-in selling is the illegal practice of a company providing a product or service on the condition that a customer purchases some other product or service.
It is not uncommon for a manufacturer to choose to "tie" its consumers' purchase of one product to a required purchase of another.
The tie-in sale works by tying the consumer's purchases together so they are no longer able to buy just one item without buying the other as well.
For example, if you wanted to purchase an iPhone from Apple, but didn't want any additional apps, you would be unable to make such a transaction because all iPhones come with preloaded apps and it's impossible for customers to opt out.
Some tie-in sale examples include digital goods, preloaded software or bundles of services.
Digital goods typically refer to items like apps, ebooks and music files that can be downloaded onto a computer in an instant, while preloaded software is when the manufacturer installs another program on your device that you don't want.
Bundles of services tie-ins are often found in the telecommunications, cable and satellite industries where consumers have to purchase a certain type of service or set number of channels with another service or package deal.
Tie-ins can be harmful because they force customers to buy items that they may not want or need.
Additionally, tie-ins can be used to make it difficult for customers to comparison shop, ultimately leading to higher prices.
The best way to avoid tie-in sales is by reading the fine print before making any purchase and being aware of what you're signing up for.
If you're not sure, ask the retailer or manufacturer for clarification. Also, keep an eye out for products that require a tie-in and try to avoid them if possible.
- Read the fine print before making any purchase
- Ask the retailer or manufacturer for clarification if you're not sure
- Look for products that don't require a tie-in
- Avoid tie-in sales whenever possible.
Now you know what tie-ins are and how to avoid them. For more information on tie-ins and other types of scams, be sure to visit our website or contact us today. We're here to help!
Tied selling is distinct from bundling, which combines products to provide consumers with lower costs than if they were purchased separately, and preferential pricing, more like product recommendations, which provides customers with better pricing if they use more of a company's goods or services.
Businesses must be aware of the difference between tying (which is forbidden) and bundling (which is acceptable within certain parameters).
Tied selling can be used as a form of price discrimination by allowing banks (or other businesses) to combine a customer's business under one roof.
It may also stifle competition by giving larger, full-service firms an advantage over smaller, single-service firms or firms with fewer product offerings, such as startups.
Tying may benefit a consumer in the context of bundling by giving discounts for bundling related products (such as fast-food value meals that are cheaper than if their component parts were purchased separately or more favourable rates, fees, or terms for banking products when multiple service services are used).
Bundling or tying may also provide consumers with a better service or product experience, such as when a computer manufacturer restricts the use of a particular type of peripheral hardware or software because aftermarket alternatives may cause faults or damage their product.
Tied selling is connected to the practise of "tying," which is an often-illegal arrangement in which a consumer must purchase another commodity from a separate market in order to buy one product.
Tied selling, which refers particularly to a banking activity and is a more prevalent word in Canada, can be extended more widely.
In the banking industry, tied selling is commonly referred to as "coercive tied selling."
"A bank shall not place undue pressure on, or force, a person to get a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining another product or service from the bank," according to the Bank Act of Canada.
Tying in the United States is covered within the broader legal umbrella of illegal competition, which was established by the Sherman Antitrust Act and developed by subsequent acts.
Both the Federal Trade Commission (FTC) and the United States Department of Justice (DOJ) are concerned with tying as a practise, as well as "tied-in" selling or "tied" items (DOJ).
Despite the heated debate over whether tie-ins should be evaluated under the rule of reason or the present modified per se rule, the form of tying that has been continuously denounced by the United States Supreme Court has received very little attention.
That is the tie that binds the requirements together (sometimes referred to as a metering tie).
Here is a competitive evaluation of the requirements tie. Regardless of the norm that applies to tie-ins in general, required ties should be considered as providing serious competition threats.
I. Ties Between Requirements
When a purchaser of a tying product is obliged to purchase a second product, this is known as a tie-in (the tied product).
The sale of two or more things in a bundle is not the same as tying. Bundled sales, on the other hand, lack the pushing element and are hence often procompetitive or benign.
When the compelling power is present, tying conduct can be condemned as an abuse of monopolistic power under Section 2 of the Sherman Act or as a restraint of trade in violation of Section 1 of the Sherman Act or Section 3 of the Clayton Act.
Ties that involve the deferred purchase of the tied product are dubious because they create information issues.
Some tying product buyers may not think about the expense of further tied product purchases.
Furthermore, even the most sophisticated and well-informed buyer may have difficulties estimating future tying product usage and competitive conditions in the tied product market.
Craswell first studied these concerns in 1982, and Kaplow and others have expanded on them.
The Supreme Court recognised life cycle pricing challenges in its 1992 decision in Eastman Kodak Co. v. Image Technical Services, Inc., which could make it hard for a tying product purchaser to accurately anticipate future demands and expenditures.
II. Analysis of Requirement Ties (Static or Allocational)
Various hypotheses have been proposed to explain how enforcing a requirements tie increases revenue for the seller.
Implementation of metered price discrimination is the most comprehensive of these explanations. Other hypotheses include:
(1) safeguarding the seller's quality reputation;
(2) distribution efficiencies;
(3) risk allocation efficiency; and
(4) market power leveraging from the tying to the tied market.
Except for metered pricing discrimination, none of the other justifications for most Supreme Court cases involving requirement ties are credible.
The following discussion looks at alternative explanations for enforcing a criteria tie before returning to metered price discrimination.
III. Dynamic efficiency analysis: Will a requirement tie lead to more innovation?
The additional earnings obtained by connecting a patented product to an unpatented product, according to proponents of maximum exploitation of IP rights, give a desirable increased incentive for innovation.
There's no denying that a larger return from a requirements tie means a higher compensation for the owner of the tying product's patent.
However, unlike a direct patent reward, the increased return achieved through a requirements tie
(1) is arbitrary because it has no direct correlation to the value of the underlying patented tying product; and
(2) may actually reduce overall innovation due to the constricting impact on the tied product market.
The straightforward nature of a basic IP reward can be easily demonstrated.
If an innovator comes up with a new way to make a solar-powered cigarette lighter, he or she may be granted a patent that gives them exclusive rights to market the product.
Consumers that consider this invention to be a valuable addition to their product portfolio at the price point given will buy it and reward the patentee.
The value that customers place on this new invention will immediately connect with the price and quantity of sales (and thus the value of the patent incentive).
Consider the additional benefit that a patentee would receive from a requirements tie if, for example, the lighter employs disposable wicks that must be replaced after a certain number of uses.
The ability of the patentee to enforce this condition is contingent on a number of circumstances that have no bearing on the value of the underlying innovation.
If identical wicks are widely available on the market from a variety of manufacturers, the patentee will likely struggle to impose a tie that establishes a premium price on the wick.
Instead, the patentee will almost certainly have to price its wicks at or near the market price for comparable wicks.
If, on the other hand, wicks of the required type are unavailable or only available at high oligopolistic pricing, the patentee can simply charge a premium for the wick, resulting in a substantially greater return.
The idea is that the size of this return will be determined by extrinsic factors (such as the status of competition in the wick market) that have no bearing on the cigarette lighter's fundamental worth.
There's one more twist to this storey.
If requirement ties are legal, the inventor has an incentive to design the patented lighter in such a way that it only works with a certain wick that the patentee can easily furnish.
The extra cost of inventing a lighter with a difficult-to-replicate wick would not advance the technology; rather, it would be a rent-seeking cost borne by the patentee in order to boost revenues.
Encouragement of rent-seeking design alterations is not a legitimate goal of IP rules, but it is an unavoidable consequence of a competitive policy that tolerates requirements ties.
This leads to the second reality about requirements ties and their ability to boost creativity.
Because a patentee who uses a requirements tie has an interest to increase and sustain its sales, it will do everything it can to prevent new entrants from entering the market, especially if the would-be entrant provides new or improved technology that the patentee does not.
As long as requirement ties are legal, the patentee will be compelled to limit competition and entry into the tied product market.
If such ties are unenforceable, the patentee is more likely to encourage advancements in wicks that could improve the usability and value of its patented lighter.
These considerations provide credence to the legislative purposes of Section 3 of the Clayton Act, which prohibits anticompetitive mandatory links regardless of whether the tying product is "patented or unpatented."
25 The case for required ties having anticompetitive effects is robust, as evidenced by venerable Supreme Court judgments, and is consistent with linking IP incentives with the value of the patented product.
When Illinois Tool Works was brought before the Supreme Court in 2005, the Justice Department and the Federal Trade Commission had an opportunity to influence the law in a good way.
That chance was squandered when the government's amicus brief concentrated solely on the presumption of market power, ignoring serious policy concerns about the use of requirements.
