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TIE‐IN SALES AND PRICE DISCRIMINATION
Author(s) -
LIEBOWITZ S. J.
Publication year - 1983
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1983.tb00640.x
Subject(s) - economics , tying , appeal , price discrimination , depreciation (economics) , microeconomics , price fixing , monopoly , profit (economics) , capital formation , financial capital , political science , law
This paper analyzes a class of contracts between buyers and sellers which specifies that the purchase of one good cannot be effectuated unless a second good is also purchased. The economic forces resulting from a tie‐in are shown to be influenced by factors such as depreciation of the tying good, the sales policy of the firm and the discount rate. Price discrimination, the traditional hypothesis for this tie‐in, is seen to make sense only when these factors align themselves in particular ways although an alternative hypothesis, risk reduction, is unaffected by these factors. The price‐discrimination hypothesis, therefore, loses much of its appeal, relative to the alternative.