Tying with Network Effects
Jay Pil Choi, Doh-Shin Jeon, Michael D. Whinston
American Economic Review · 2026 · Volume 116 · Issue 1
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
Market Structure, Pricing, and Design: Perfect Competition, Network Formation and Analysis: Theory, Antitrust Law, Information and Product Quality, Standardization and Compatibility, Antitrust Issues and Policies: General
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