Tie-In Sales and Banks

Abstract

Banks are broadly prohibited from tying the sale of their own nontraditional banking products or the products of their nonbank affiliates to the sale of traditional banking services (credit and deposit services). This prohibition grows out of a concern that such tied pricing practices constitute a threat to the competitive performance of financial markets. The economic analysis of tying suggests, on the contrary, that there may be many motivations for this form of pricing, most of which do not imply that the practice is anticompetitive. Most notably, tying is often a form of price discrimination. As such, tie-in sales are at least as likely to increase as to decrease sales in imperfectly competitive markets.