Saturday, April 10, 2010

Poll: Should a computer monitor be tied to your computer purchase?

Some economists study the effects of potentially anti-competitive practices (and what to do about them). The classic anti-competitive practices are monopolization, conspiracy to fix prices, and forming a cartel. But, a lot of other business practices -- called "bad acts" -- have fallen under the scrutiny of antitrust law.

It is an interesting question whether tie-in sales (linking the purchase of one product to the purchase of another) should be a bad act. To see why, consider two examples.

Example 1: A firm produces two products: Accounting machines and punch cards for accounting machines. The firm is the only firm to produce accounting machines because it has a patent, but the punch cards can be made by anyone in a competitive industry (and can be used in other less-popular purposes). In this case, allowing the firm to tie punch card sales to the sale of the accounting machine will allow it to have significant market power in punch cards, as well as in accounting machines. If tying the sales of punch cards to machines leaves no room for other competitors, the company could achieve and exploit more monopoly power. That's the idea of a bad act.

Example 2: A firm produces two products: Shoes and shoelaces. Imagine that the firm is the only firm to produce shoes, but there's a competitive market for shoelaces. As in the previous example, the shoe company can foreclose its competitors by (literally) tying in the sale of the shoelaces to the shoes. But, wouldn't it be a hassle for the consumer to independently contract for shoes and shoelaces when he could just buy the whole package?

To a lesser extent, this argument applies to the first example. It might be really convenient to have a stock of punch cards come with the purchase of a new accounting machine. On the other hand, if the consumer has a strong preference for some other type of punch card, it is inconvenient to have to buy some of the type you don't want. Viewed in this light, it comes down to whether it is more convenient for the consumer on average to purchase both products together.

This brings me to my poll question of the week, and it relates to a personal example. We recently bought a new computer on special from Dell. One of the conditions of the special was that the computer came with a Dell monitor. We didn't really need the monitor because we already had a better one from our previous computer, and I imagine that this is a fairly common situation: In my experience, computers tend to wear out before monitors do.

One could make the strong case that monitors and computers are separate products. In fact, I have seen other retailers start to move to a model where they sell the computer separate from the monitor.* So, that brings me to my question:

Should a computer monitor be tied to your computer purchase?

(a) Yes
(b) No, but it should be an option.
(c) No. It should be sold separately.

The poll is open for a week, so vote early and often (on the sidebar -->). Tell your friends, your tech-support gurus, your customer service representatives, and your antitrust officials to vote. I'm interested in hearing what you have to say.

*Ten years ago I can imagine that this was the same debate over printers and computers. By my fuzzy recollection, computers used to always come with a printer. Now, it is one of the many "accessory" options one can choose. From this casual observation, it seems that the whole computer industry is "untying."

1 comment:

  1. 3 said "Yes"
    10 said "No. It should be optional."
    4 said "No. It should be sold separately"

    ReplyDelete

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