Tie-in sales have a bad image because of anti-competitive effects. Notably, tying contracts allow monopolists to carry over monopoly power into markets where they meet competition. Most of the literature assumes a firm being monopolist in one market and facing competition in another. In...

We combine Hotelling's model of product differentiation with tie-in sales. Tie-in sales condition the sale of one good upon the purchase of another good. In equilibrium firms choose zero product differentiation. Due to the tying structure no firm can gain the whole market by a small price...