Discussion paper

DP19076 Tying with Network Effects

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.


Choi, J, D Jeon and M Whinston (2024), ‘DP19076 Tying with Network Effects‘, CEPR Discussion Paper No. 19076. CEPR Press, Paris & London. https://cepr.org/publications/dp19076