American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Tying with Network Effects
American Economic Review
(pp. 332–74)
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.Citation
Choi, Jay Pil, Doh-Shin Jeon, and Michael D. Whinston. 2026. "Tying with Network Effects." American Economic Review 116 (1): 332–74. DOI: 10.1257/aer.20240461Additional Materials
JEL Classification
- D41 Market Structure, Pricing, and Design: Perfect Competition
- D85 Network Formation and Analysis: Theory
- K21 Antitrust Law
- L15 Information and Product Quality; Standardization and Compatibility
- L40 Antitrust Issues and Policies: General