What is 'Tied Selling'

Tied selling is the illegal practice of a company providing a product or service on the condition that a customer purchases some other product or service. It is frequently used in reference to banks and referred to as coercive tied selling, but is also associated with the sales practices of product tying or bundling, which may be legal in some contexts. Tied selling may also be referred to as a "tying arrangement" or a "tying agreement." 

Breaking Down 'Tied Selling'

Tied selling is related to the practice of "tying," the often-illegal arrangement where, in order to buy one product, the consumer must purchase another product that exists in a separate market. Tying may be applied more broadly than tied selling, which refers specifically to a banking practice and is a more common term in Canada. Tied selling in a banking context is often referred to as "coercive tied selling." Tied selling is referred to in that country's Bank Act, which addresses coercive tied selling thusly: "A bank shall not impose undue pressure on, or coerce, a person to obtain a product or service from a particular person, including the bank and any of its affiliates, as a condition for obtaining another product or service from the bank."

In the United States, tying falls under the wider legal umbrella of illegal competition that was originally censured by the Sherman Antitrust Act and refined in later acts. Tying as a practice, as well as "tied-in" selling or "tied" products is addressed by both the Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ)

Tied Selling vs. Tying vs. Bundling

Tied selling differs from bundling, which combines products and can afford consumers lower prices that if items were purchased individually, and preferential pricing, which is better pricing if a customer uses more of a company's goods or services. The distinction between tying (illegal) and bundling (legal within limits) is an important one for businesses to understand. 

Tied selling may be used as a means of price discrimination in that it may help banks (or other companies) consolidate a customer's business within a single provider. It may also stymie competition by giving larger, full-service companies an edge over smaller, single-service providers or those with more limited product lineups, such as with startup companies. In the context of bundling, tying may be beneficial to a consumer, providing discounts for bundling related products (such as fast food value meals that are cheaper than if their component parts were purchased separately or more favorable rates, fees or terms for banking products when multiple service services are used). Bundling or tying may also provide better service or product experience for consumers, such as if a computer manufacturer limits the use of a specific type of peripheral hardware or software because aftermarket options may create errors or damage their product.

Tied Selling Example

An illegal example of tied selling would be when your bank's mortgage specialist tells you that you qualify for a home mortgage but the bank will approve it only if you transfer your investments to the bank or its affiliates. You want the mortgage, but you don't want to move your investments.

  1. ARM Index

    Lenders use a benchmark interest rate called an ARM index to ...
  2. Bull CD

    A Bull CD is a certificate of deposit whose interest rate is ...
  3. External Debt

    External debt is a form of financing borrowed by a country from ...
  4. Relationship Banking

    Relationship banking is a strategy used by banks to strengthen ...
  5. Hard Money

    Hard money is an ongoing funding stream versus a one-time grant ...
  6. Marketing

    Marketing refers to the activities of a company associated with ...
Related Articles
  1. Small Business

    2 Key Tactics Retailers Use To Increase Sales

    Many companies use versioning and bundling to increase sales. These strategies can offer value to consumers, but they also mean higher costs.
  2. Personal Finance

    How an Interest Rate Rise Affects Your Mortgage

    A look at what makes home-related loans move the way they do. The surprise: Mortgage rates don't necessarily follow interest rates.
  3. Personal Finance

    Retail Banking vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking refers to the aspect of banking that deals with corporate customers. Check out more on the differences between ...
  4. Personal Finance

    Why Your Career, Not a 401(k), Is Your Best Asset

    Learn why your career, not your house or retirement plan, is your best asset.
  5. Investing

    Mortgage Rates To Rise, But When And By How Much?

    Mortgage rates have been at historical lows since 2008 following the financial crisis. They're expected to rise, but when and by how much?
  6. Investing

    Apple Considers Streaming TV Bundle (AAPL)

    Apple wants to establish itself in web TV content market by offering a premium channel bundle.
  7. Investing

    The Very Cheapest Ways to Get Phone Service

    From landlines to bundled service to VoIPs and MVNOs, there are more inexpensive options than ever. Here's a rundown.
  8. Insights

    The Role of Commercial Banks in the Economy

    We interact with commercial banks daily to carry out simple financial tasks. That said, the function and creation of a commercial bank is anything but simple.
  9. Small Business

    What are antitrust laws?

    Learn about antitrust laws or "competition laws." These statutes protect consumers from predatory business practices by ensuring fair competition exists.
  10. Small Business

    5 Best Countries For Starting And Owning A Small Business

    Singapore, New Zealand and Denmark are just some of the most business-friendly countries in the world.
  1. How are period costs and product costs different?

    Product costs are the direct costs involved in producing a product. Period costs are all costs not included in product costs ... Read Answer >>
  2. How operating expenses and cost of goods sold differ?

    Operating expenses and cost of goods sold are both expenditures used in running a business but are broken out differently ... Read Answer >>
  3. How can I sell private company stock?

    In some instances, both private and public companies may issue shares to their own employees as part of a compensation program. ... Read Answer >>
Trading Center