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Tying with Network Effects

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  • Jeon, Doh-Shin
  • Choi, Jay Pil
  • Whinston, Michael

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.

Suggested Citation

  • Jeon, Doh-Shin & Choi, Jay Pil & Whinston, Michael, 2024. "Tying with Network Effects," TSE Working Papers 1524, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:129287
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    References listed on IDEAS

    as
    1. Caillaud, Bernard & Jullien, Bruno, 2003. "Chicken & Egg: Competition among Intermediation Service Providers," RAND Journal of Economics, The RAND Corporation, vol. 34(2), pages 309-328, Summer.
    2. Greenlee, Patrick & Reitman, David & Sibley, David S., 2008. "An antitrust analysis of bundled loyalty discounts," International Journal of Industrial Organization, Elsevier, vol. 26(5), pages 1132-1152, September.
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