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.
Reference
Doh-Shin Jeon, Jay Pil Choi, and Michael Whinston, “Tying with Network Effects”, TSE Working Paper, n. 1524, April 2024, revised May 2025.
See also
Published in
TSE Working Paper, n. 1524, April 2024, revised May 2025