Tying with Network Effects

Doh-Shin Jeon, Jay Pil Choi and Michael Whinston

No 1524, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We develop a leverage theory of tying in markets with network effects. When a monopolist in one market cannot perfectly extract surplus from consumers, tying can be a mechanism through which unexploited consumer surplus is used as a demand-side leverage to create a “quasi-installed base” advantage in another market characterized by network effects. Our mechanism does not require any precommitment to tying; rather, tying emerges as a best response that lowers the quality of tied-market rivals. While tying can lead to exclusion of tied-market rivals, it can also expand use of the tying product, leading to ambiguous welfare effects.

Date: 2024-04-11
New Economics Papers: this item is included in nep-com, nep-mic and nep-reg
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Working Paper: Tying with Network Effects (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:129287

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