Full-line Forcing and Tie-in Sales (Report) (Hansard, 19 March 1981)

§ Mrs. Sally Oppenheim

The report is published today.

The commission has studied the general effect on the public interest of the practices covered by the reference. On the evidence available it finds that the effect of the practices varies considerably with the circumstances in which they occur and is not consistently harmful, beneficial, or neutral. The proportion of cases in which the practices operate against the public interest is not sufficiently high to justify a general prohibition. In particular cases the practices may be harmful, but the commission believes that the existing provisions of the Competition Act which provide for a case-by-case approach and, where necessary, of the Fair Trading Act, are sufficient in general for adequate control of such cases. The commission suggests guidelines for the identification of practices which may need further investigation.

The practices were referred to the commission for investigation in April 1979. The reference, made under section 78 of the Fair Trading Act 1973, required the commission to report on the general effect on the public interest of the practice of requiring purchasers of one type of goods or services to acquire other goods or services as a condition of supply. This definition covers the practices commonly known as "tie-in sales", where a particular good or service cannot be acquired without another specified item, and "line-forcing" or "full-line forcing", where one item cannot be acquired from a range without some or all of the remaining items.

The commission finds that practices covered by the reference are not uncommon, but that their character varies considerably with the circumstances of the sector in which they are found. "Tie-in sales" are commonly found in connection with machines and equipment, especially where it is supplied on rental or under service agreements and guarantees. Tying conditions may require the user to accept the supplier's servicing facilities, spare parts, or related products. A similar type of tying arrangement occurs when goods for sale are supplied in connection with storage or dispensing equipment. "Full-line forcing" in the strict sense appears to be relatively uncommon. "Line forcing" of a more limited kind is more common, especially in connection with "agency" arrangements in retailing.

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The commission's report includes brief surveys of the effects of practices covered by the reference in connection with particular products or services, including copying machines, computers, cosmetics, shoe retailing, franchise distribution systems, certain aspects of the brewery trade, petroleum products, insurance agency, agricultural equipment and supplies, pharmaceuticals, and the supply of television advertising time.

The commission finds that the effects of the practices vary according to circumstances such as the type of product, the form of the tying condition—including the degree of exclusivity—and the strength of competition in the relevant markets. In some cases arrangements are justified for technical reasons, or lead to a reduction in costs. But where the supplier enjoys substantial market power, the practices may simply represent the exercise of monopoly power in one market to restrict competition in another. The commission emphasises that in some cases the issues are complex, and that it was not always able to examine particular industries in sufficient depth to reach firm conclusions.

The commission's main aim in the investigation was to establish whether the practices covered by the reference are invariably, or almost invariably, against the public interest, and therefore merit being singled out for special treatment. It has concluded that this is not the case. Although the practices may give rise to concern, in a significant proportion of cases there is no evident detriment to the public interest. A general prohibition of the practices would not be justified. Any new legislation would need to make provision for exemptions, and a large number of cases would have to be considered on their merits. There would be serious problems in defining the practices to be covered by the legislation. Overall, there would be no significant advantages in this approach as compared with existing means of investigation. The commission recommends continued use of the Competition Act, or, where a practice gives rise to concern throughout an industry, the complex monopoly provisions of the Fair Trading Act. In identifying cases which may give rise to concern, relevant considerations include the degree of market power the supplier enjoys in the market for the goods or service to which the conditions are attached, and the structure of the market for the other goods or services concerned. Other relevant factors include the degree of exclusivity insisted on, and any technical arguments which may be put forward in favour of the practice.

I accept the commission's conclusion that at present there is no need for legislation to prohibit these practices. The report will be useful in identifying circumstances in which the practices may be harmful. The Director General of Fair Trading will be able to take the findings of the commission into account when considering action under the Competition Act.