Tying with Network Effects

Jay Pil Choi, Doh-Shin Jeon and Michael D. Whinston

No 19076, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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.

Keywords: Tying; Leverage; Network effects (search for similar items in EconPapers)
JEL-codes: D42 K21 L12 L41 (search for similar items in EconPapers)
Date: 2024-05
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Working Paper: Tying with network effects (2024)
Working Paper: Tying with Network Effects (2024)
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