Tying with Network Effects

Doh-Shin Jeon, Jay Pil Choi and Michael Dennis Whinston
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Doh-Shin Jeon: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Jay Pil Choi: Unknown
Michael Dennis Whinston: Unknown

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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: 2026-01
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Published in American Economic Review, 2026, vol. 116 (n°1), pp.332-374. ⟨10.1257/aer.20240461⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05467973

DOI: 10.1257/aer.20240461

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