Chicago School theorists have argued that tying cannot create
anticompetitive effects because there is only a single monopoly profit. Some
Harvard School theorists have argued that tying doctrine’s quasi-per se rule is
misguided because tying cannot create anticompetitive effects without foreclosing
a substantial share of the tied market. This Article shows both positions are
mistaken. Even without a substantial foreclosure share, tying by a firm with
market power generally increases monopoly profits and harms consumer and total
welfare, absent offsetting efficiencies. The quasi-per se rule is thus correct to
require tying market power and a lack of offsetting efficiencies, but not a
substantial tied foreclosure share. However, the quasi-per se rule should have an
exception for products with a fixed ratio that lack separate utility, because those
conditions generally negate anticompetitive effects absent a substantial foreclosure
share. Cases meeting this exception should instead be governed by a traditional
rule of reason that requires a substantial foreclosure share or effect.
Bundled discounts can produce the same anticompetitive effects as tying
without substantial tied foreclosure, but only when the unbundled price exceeds the
but-for price. Thus, when the unbundled price exceeds the but-for price, bundled
discounts should be condemned based on market power absent offsetting
efficiencies, with the same exception for products with a fixed ratio that lack
separate utility. When the unbundled price does not exceed the but-for price,
bundled discounts should be condemned only when there is substantial foreclosure
or direct proof of anticompetitive effects. Alternative tests for judging bundled
discounts, such as comparing the effective price to cost, are not only
underinclusive, but perversely exempt the bundled discounts with the worst
anticompetitive effects.