In the pro-consumer reform there are more than thirty amendments to the Consumer Protection Law. However, from my perspective, tied sales have not been addressed in their real importance and far exceed, in magnitude and relevance, the issues dealt with, such as, for example, the extension of guarantees of goods from 3 to 6 months, modifications in the purchase of air tickets, changes in matters of technical services of automobiles and electronic commerce, among others. Leaf litter, an ex would have said.
When there is not enough information and competition in a market, it can lead to abuse of consumers or even fraud. Even more so when it is recognized the low degree of financial education of the population and the complexity to compare products, especially when they have tied sales and ancillary charges not directly imputed to the direct cost of credit.
In very general terms, a tied sale is defined as a transaction where, for the acquisition of a certain product or service, the contracting of other products or services is required in an imperative manner. A classic tied sale is the offer of a product with a super discount conditioned on the use of the retail’s own means of payment; the super discount is not available for cash payment or with another means of payment.
Article 17H of Law 19.496 states that suppliers of financial products or services may not offer products or services in a tied manner. The same legal body defines tied sale: it is understood that a product or service is sold in tied form if:
(a) the supplier imposes or conditions on the consumer the contracting of other additional, special or related products or services; and
(b) if the supplier does not have it available to be contracted separately when it can be contracted in that way with other suppliers, or by having them available in this way, this means for the consumer to purchase it under arbitrarily discriminatory conditions.
At the end of Article 17H, it is stated that “it may not be restricted or conditioned that the purchase of consumer goods or services is made exclusively with a means of payment administered by the same supplier, by a related company or a company supporting the remittance”. However – and here an interesting point – it is also pointed out that “the foregoing is without prejudice to the right of the supplier to offer discounts or additional benefits associated exclusively with a means of payment administered by any of the subjects indicated”.
So, we have a dilemma: differentiate when it would be a joint product sale versus a tied-up sale, which is not very easy. And since it is not defined in practice, it gives rise to the existence of a dangerous grey area. Sometimes both terms are used as equivalents.
Selling products together consists of buying several different products or services in a single “package”. This is a very common trading practice and totally valid as a marketing strategy. Common examples are PCs with printer and scanner, passage plus hotel, sandwich plus drink and more potatoes, cable TV plan plus Internet, etc. The consumer sometimes likes such offers as buying each product separately can be more expensive.
In summary, and for the purpose of analysis, the distinction between joint product and tied sales would be:
Joint selling occurs when two goods are sold separately, but there is a discount if they are purchased together.
Tied sale occurs when, through a contractual or technological requirement, the sale of a product or service is conditioned on the consumer purchasing another product or service.
In practice the difference between joint sales and tied sales is very subtle. In fact, two products can be offered together at such a discount that it is in nobody’s interest to buy just one of them, which transforms into tied sales.
In the context of a pro-consumer reform, the important thing is to determine whether the effects of this type of sales are anti-competitive or not, and the problem is not easy to solve. Why? Because
economic theory shows that a joint-tied sale can have both pro-competitive and anti-competitive effects.
Pro-competition: when there are lower costs in producing, distributing and selling two goods together it may be efficient not to sell them separately, especially if most consumers prefer to consume the two goods instead of just one (which happens when the two goods are complementary to each other; an obvious case is the tied sale of shoes left and right).
Anti-competition: a tied sale can be used successfully and profitably to reduce competition by excluding competitors in a market. This is particularly relevant when it comes to a dominant supplier in the “ary” product and the plaintiff/consumer cannot look for alternatives to the “tied” product.
In the United States, a tied-up sale by a company with market power is in practice considered a violation of competition laws and constitutes unlawful conduct under the provisions of the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. Specifically, in financial products and services, the Bank Holding Company Act prohibits subordinating the provision of a service to the customer’s acceptance of another additional product or service.
And in Chile? It is possible to observe both pro-competitive joint sales and anti-competitive tied sales. In relation to the latter, they often “pass piola”, disguised as joint sale. Have you seen in retail an “unbeatable” offer where the price with your own card makes the option of cash payment practically unfeasible? It could be argued that the consumer still wins because they can “take advantage” of the offer with a card and then pay it within the month, but that would be a very simplistic analysis. Because when tied sales are an integral part of the company’s strategy, we have a problem: tied selling would be a successful and profitable means of reducing competition by excluding competitors in the retail market who do not have the credit card as a means of payment. And who ultimately pays for that strategy and those abnormal returns?
Clearly the current body of law has a gap, a grey area, which needs to be addressed. Let’s take advantage of the “little fly” of the pro-consumer reform and discuss this issue seriously… and well done, because what is intended to be done, namely to amend the aforementioned article of law and to prohibit the special discounts associated with means of payment, is another patchwork, badly done and even counterproductive solution. In short, a foolishness.
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