TIED OR CONDITIONAL SELLING
What is Tied or Conditional Selling?
Tied or conditional selling occurs when a supplier makes the sale of one product or service (the tying product) conditional on the purchase of another product or service (the tied product), and thus the tying product is not sold separately. An example is a situation where a supplier of medical devices to hospitals and clinics stipulates in its sales contracts that the consumable medical products used with the devices must be purchased exclusively from it. Such requirements significantly limit the customer base available to competing manufacturers of consumables. If the medical devices supplier has a substantial market power in the relevant medical devices market, the arrangement may amount to a restrictive practice.
Prohibition of Tied or Conditional Selling
Section 2 of the Competition Act [Chapter 14:28] (the Act) defines tied or conditional selling as “any situation where the sale of one commodity or service is conditional on the purchase of another commodity or service.”
The Act prohibits tied or conditional selling as a restrictive practice. A restrictive practice is defined in relation to tied and conditional selling as any agreement, arrangement or understanding, whether enforceable or not, between two or more persons, any business practice or method of trading, any deliberate act or omission on the part of any person, whether acting independently or in concert with any other person or any situation arising out of the activities of any person or class of persons, which restricts competition directly or indirectly to a material degree, in that it has or is likely to have the effect of limiting the commodity or service available due to tied or conditional selling.
Anticompetitive effects of tied or conditional selling
Tied or conditional business practices are exploitative and exclusionary in nature and may act as a barrier to entry by new market players. Even in scenarios where there are no exclusionary effects, tying may have direct exploitative effects, for instance when used by suppliers with substantial market power to price discriminate, which is another anti-competitive practice. Anti-competitive effects of tied or conditional selling are as follows: –
To The Customer
- it has exploitative effects on consumers through forcing them to buy an undesired product (the tied product) in order to purchase the product, they want (the tying product)
