Posted in Marketing and Strategy Terms, Total Reads: 279
Definition: Tie in Sale
Tie in sale is a marketing arrangement in which a seller sells an in-demand product to a buyer on one stated condition that he would have to buy a lesser popular product along with it. The purchase of this add on product; be it in line or not with the primary product for which the transaction was initiated is a mandate as shown in the above diagram. It clearly states a 50% discount on all widgets on one condition that the buyer would buy the gadgets too.
It is a contractual arrangement. The product which is of buyers interest is known as the tying product and which is a mandate to purchase is known as the ties product. It is considered as an extension of monopoly & a shift of market from tying to tied products. The tie-in reduces risks to consumers by maintaining the quality of products; it also promotes price discrimination depending upon different consumer buying capacities. Tie-in arrangement if limit the competition in the market then these are considered as illegal.
Price discrimination is used to explain the tie-ins where the ration of price is marginal cost is lesser for tying good than the tied good. The more intensive consumers are charged more as compared to the less intensive consumers. Since the more intensive consumers are less elastic on the demand curve & hence serve to be more profitable.