Compound Pricing

John S McGee

Economic Inquiry, 1987, vol. 25, issue 2, 315-39

Abstract: Compound pricing makes the price or availability of some goods conditional on the purchase (or non-pur chase) of other goods. Tie-ins and requirements contracts, two well-k nown examples, are analyzed here. Contrary to some opinion, such prac tices need not be innocuous or benign. This analysis shows that compo und pricing can produce price, output, profit, and welfare results th at are practically indistinguishable from those obtained when a firm increases its monopoly power in more obvious and direct ways. By som e standards, the requirements and exclusive dealing contracts analyze d here are predatory. Copyright 1987 by Oxford University Press.

Date: 1987
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