Tying with Network Effects

doi:10.1257/aer.20240461

Tying with Network Effects

2026-01-01

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Michael D. Whinston *

DOI：10.1257/aer.20240461

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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. (JEL D41, D85, K21, L15, L40)

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LEVERAGE

Tying with Network Effects

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