Jeon, Doh-ShinORCID: https://orcid.org/0000-0002-9381-8412, Choi, Jay Pil and Whinston, Michael Dennis (2026) Tying with Network Effects. American Economic Review, vol. 116 (n°1). pp. 332-374.

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.