Tie-in Sales and Banks

A bank is a multiproduct firm. While its products can be grouped into two broad categories, credit and deposit services, each of these categories comprises many distinct products. In addition to these “traditional banking services,”1 some banks, either directly or through affiliated companies, offer a wider array of financial services. A continuing trend toward deregulation is likely to further expand the set of activities and markets open to banking organizations. Some of the services offered by banks are sold to distinct sets of buyers. On the other hand, there are broad classes of bank clientele who regularly obtain multiple services. A business firm’s relationship with a bank, for instance, may include deposit and cash management services as well as regular extensions of credit. The typical household is also a user of multiple bank services. It is not uncommon for a multiproduct firm to undertake joint marketing efforts. The costs incurred to generate sales for the various products sold cannot always be neatly allocated across products. Such joint actions might occur in all aspects of marketing. A seller might, for instance, seek to develop a single brand identity for a variety of products so that expenditures on promotion of the brand might enhance the sales of all the products. Joint efforts might also show up in the pricing of products. For instance, a seller might give discounts on one product that are contingent on the buyer’s purchase of some other product from the same seller. Or a seller might choose to sell two products only as a bundle, not separately. It is this sort of tying, or bundling of products, that has attracted a fair amount of attention in discussions of the law and economics of antitrust.