Page 69 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE

is abusive requires detailed analysis of the purpose of the tie-in and the

market context.
Sometimes two products are vertically related, with one good an input

in the production of the other. If so, the competition agency must try to

understand the reasons for the tie-in. In general, a tie-in cannot be motivated
by abuse if the two products are used in fixed proportions (as might be the

case in an industrial process): the dominant firm could maximize profits by
charging a sufficiently high price in the tying market, and the tie-in practices

would not increase profits.
Tying is often motivated by the firm's desire to maintain or increase its

reputation for quality or product reliability. This should not be considered

abusive since it increases efficiency and market demand. For example, poor
servicing of a dominant firm's product by an independent company may

negatively influence the reputation of the dominant firm and result in lower

sales. To avoid this the dominant firm might sell its products and services
together through a tie-in contract. Nevertheless, it is worth considering whether

the legitimate aim of the dominant firm to maintain or increase its reputation
could be reached by less restrictive means, such as an improvement of its quality

control processes.
Tying raises concerns for competition policy when it allows

supranormal profits to be made in a properly defined market. This might be

the case when tie-in practices raise entry barriers to competitors and enable
the exercise of market power in the tied market. Tying can also be an abuse

if used to evade price regulation on the tying good. Suppose a dominant firm
has market power in its primary product. Suppose further that the dominant

firm’s price is regulated, which effectively prevents it from earning all of the
monopoly profits that it could if there were no regulation. The dominant firm

would have an incentive to sell its regulated product on condition that

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