Acton Institute PowerBlog

Does tying benefit social welfare?

Note: This is post #52 in a weekly video series on basic microeconomics.

What is tying and how is this a form of price discrimination? An example of a tied good is an HP printer and the HP ink you need for that printer. The printer (the base good) is often relatively cheap whereas the ink (the variable good) has a high markup, and eventually costs you far more than what you paid for the printer. Why do companies tie their goods? What is the difference between bundling and tying? In this video by Marginal Revolution University, economist Tyler Cowen answers these questions and explains the effect of tying on social welfare.

(If you find the pace of the videos too slow, I’d recommend watching them at 1.5 to 2 times the speed. You can adjust the speed at which the video plays by clicking on “Settings” (the gear symbol) and changing “Speed” from normal to 1.25, 1.5 or 2.)

Previous in series: The social welfare of price discrimination