TY  - JOUR
AU  - Whinston,Michael D.
TI  - Tying, Foreclosure, and Exclusion
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2995
PY  - 1989
Y2  - June 1989
UR  - http://www.nber.org/papers/w2995
L1  - http://www.nber.org/papers/w2995.pdf
N1  - Author contact info:
Michael D. Whinston
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL  60202
Tel: 847/491-8260
Fax: 847/491-7001
E-Mail: mwhinston@northwestern.edu
AB  - Tied sales have a long history of scrutiny under the antitrust laws of the United States. The primary basis for the condemnation of this practice has been the court's belief in what has come to be known as the "leverage theory" of tying: that is, that tying provides a mechanism whereby a firm with monopoly power in one market can use the leverage provided by this power to foreclose sales in, and thereby monopolize, a second market. In recent years, however, the leverage theory has come under heavy attack. In this paper, I reconsider the leverage hypothesis. I argue that, in an important sense, the models used by the critics of the leverage theory which all assume that the tied good market has a competitive, constant returns-to-scale structure- are incapable of addressing the central concern of the leverage theory, that tying can be profitably used to change the market structure of the tied good market. I then demonstrate that when the tied good market has an oligopolistic structure, tying can indeed serve as a mechanism for leveraging market power through the foreclosure of tied market rivals sales. The mechanism through which this foreclosure occurs, its profitability for the monopolist, and its welfare implications are discussed in detail.
ER  -