Mostly
summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 17 of 36 - Oligopoly
Section 20 of 22
... 
Antitrust laws have been used to ban or
limit some business practices with less obvious effects, including
-1- resale price maintenance
-3- tying
…
-3- Tying
Consider studio “MakeMovies” has made
two new films, Spiderman and Hamlet.
A tying case would be MakeMovies
offers theaters the two films together at a single package price rather than offering
the two films separately.
The court reasoned:
· suppose Spiderman is a blockbuster, and Hamlet is an unprofitable art film
· the studio could use the high demand
for Spiderman to force theaters
to buy Hamlet
· the studio would be using tying as a
mechanism for expanding its market power, by expanding its control over what
theaters must buy
…
Many economists are skeptical of this
argument.
Suppose theaters are willing to pay
$20,000 for Spiderman and
nothing for Hamlet.
The most a theater would pay for the
two movies together is $20,000, same as it would pay for only Spiderman.
Forcing the theater to accept a second
valueless movie does not increase the theater's willingness to pay.
…
One usefulness of tying to suppliers is
it is a type of price discrimination.
Per Table 2, suppose there are two
theaters
· City Theater is willing to pay
$15,000 for Spiderman and
$5,000 for Hamlet
· Country Theater is willing to pay
$5,000 for Spiderman and
$15,000 for Hamlet
Therefore, added sales amount = added
profit amount
Case 1: If MakeMovies
charges separate prices for the two films
· each theater chooses to buy and show
only one film
· total sales/profits are $30,000
Case 2: If MakeMovies ties the two
movies as a package
· it can charge each of the two theaters
$20,000
· then sales to each is $20,000 rather
than $15,000
· total sales/profits are $40,000
Case 2 result: $40,000 - $30,000 =
$10,000 deadweight loss eliminated and becomes sales/ profit for MakeMovies.
…
If different theaters value the films
differently tying may allow the studio to increase profit by charging a price
for two movies closer to the buyers' total willingness to pay.
A company making more profit is better
than economic deadweight loss.
When either producer or consumer surplus
is increased the economy is enriched and enlarged.
…
Is the above case a good example of the
economic benefit of tying?
ChatGPT:
Yes, this case is a textbook example of
the economic benefit of tying when used as a form of price discrimination.
Why This Is a Good Example of
Beneficial Tying
1. Different Willingness to Pay Across
Buyers
City Theater values Spiderman highly
($15,000) and Hamlet less ($5,000).
Country Theater values Hamlet highly
($15,000) and Spiderman less ($5,000).
Crucially, both value the total package
at $20,000—but split differently across the two products.
This variation in relative valuation is
what makes tying profitable.
2. Deadweight Loss with Separate
Pricing (Case 1)
MakeMovies charges $15,000 per film.
Each theater only buys the film they
value at or above $15,000.
Total sales: $30,000.
Each theater gets only one movie;
valuable economic transactions (e.g., City Theater buying Hamlet for $5,000)
are lost.
The $10,000 of mutual value is not
realized.
That’s classic deadweight loss—missed
gains from trade.
3. Tying Eliminates Deadweight Loss
(Case 2)
MakeMovies bundles both films for
$20,000.
Each theater buys the package—because
it equals their combined willingness to pay.
Total sales: $40,000.
The previous $10,000 deadweight loss is
now converted into sales and profit.
This is a clear gain in producer
surplus with no cost to efficiency—since all movies are delivered digitally at
zero marginal cost.
4. Tying Enables Price Discrimination
By packaging the films and charging a
single price, the studio captures more of the total consumer surplus without
requiring different prices for each theater.
It’s a form of second-degree price
discrimination, exploiting different preferences across buyers for bundled
goods.
Economic Efficiency Argument
It is correctly concluded:
Total surplus increases.
There’s no production cost difference,
so the added profit is pure efficiency gain.
No coercion occurs here, because the
price matches the buyer’s total willingness to pay.
So:
Yes, tying can (but not in all cases)
increase both producer surplus and total economic welfare—especially when
buyers differ in how they value individual items but are willing to pay more in
total.
…
Why did the Supreme Court ban tying if
it is good for the overall economy?
ChatGPT:
Bottom Line:
The Supreme Court banned tying in
certain cases because it can be used anti-competitively, even though in some
situations like the movie bundling example it improves economic efficiency.
… …
coercion does not occur
kyōsei wa okoranai
強制は起こらない
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