Abstract

Even casual observation of the business world or the most careless reading of trade-regulation cases reveals that firms with monopoly power with respect to one good frequently attempt to condition the right to purchase that good by requiring that the buyer also purchase stated quantities of ‘requirements’ of other goods from the monopolist. Full-line forcing, defined here as the practice of requiring that the purchaser of product A purchase stated quantities or ‘requirements’ of products B, C, … from the seller of A, is indeed an important economic phenomenon. It is my purpose to state a fairly general theory explaining this phenomenon on grounds independent of those advanced by the courts in pursuance of the decision rule of the Motion Picture Patents case, where a tying arrangement was rejected on the ground that tying the sale of a second product to a patented product involved extension of monopoly into a new market.2 My central theme is that only the most extraordinary circumstances permit a monopolist to extract all of the profit potential of his monopoly from manipulation of the price of the monopolized product; in general, auxiliary mechanisms are necessary if the full possibilities of monopoly profit are to be realized. This theme possesses a corollary of wider, and perhaps more shocking, application: there are few circumstances in which a firm with monopoly power over a good used as an input in some economic process does not have an incentive to vertically integrate that process, and full-line forces can sometimes be seen as means of achieving the effects of vertical integration.

Keywords

Sugar Corn Transportation Income Marketing 

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Notes and References

  1. 2.
    Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 US 502 (1917). ‘In antitrust law, the conclusion that tying the sale of a second product to a patented product is automatically illegal has been accepted by the courts for forty years’ (Bowman, Tying Arrangements and the Leverage Problem, Yale Law Journal, 67, p. 20 (1957)).Google Scholar
  2. The interested reader will find this and Hilton, Tying Sales and Full-Line Forcing. Weltwirtschaftliches Archiv, 81, p. 265 (1958), an invaluable introduction to the law and economics of tie-in sales. A rather formal theory of a certain class of tying arrangements has been offered by the present writer in The Economics of Tie-In Sales, Review of Economics and Statistics, 42, p. 68 (1960). This paper attempts to put the argument of The Economics of Tie-In Sales for the general reader and to extend that argument to wider classes of industrial practice.Google Scholar
  3. 69.
    For a theoretical discussion of selling costs see Hahn, ‘The Theory of Selling Costs’, Economic Journal 293 (1959) and the references therein. See also Demsetz, ‘The Nature of Equilibrium in Monopolistic Competition’, Journal of Political Economy, 67, p. 21 (1959).CrossRefGoogle Scholar

Copyright information

© M. L. Burstein 1988

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  • M. L. Burstein

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