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Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs

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Author Info
Christopher Knittel (University of California, Davis)
Victor Stango (Tuck School of Business at Dartmouth College)
Abstract

Incompatibility in markets with network effects reduces consumers' ability to "mix and match" components offered by different sellers, but can also spur changes in product attributes that might benefit consumers. In this paper, we estimate the effects of incompatibility on consumers in a classic hardware/software market: ATM cards and machines. We find that ATM fees ceteris paribus reduce the network benefit from other banks' ATMs. However, a surge in ATM deployment accompanies the shift to surcharging. Even under conservative assumptions regarding how much of the surge is directly attributable to surcharging, greater deployment often completely offsets the harm from higher fees. The results suggest that policy discussions of incompatibility must consider not only its direct effect on consumers, but also its effect on product attributes.

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Publisher Info
Article provided by Berkeley Electronic Press in its journal Advances in Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages: 1731-1731
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Handle: RePEc:bep:eapadv:v:8:y:2008:i:1:p:1731-1731

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Related research
Keywords: network effects ATMs incompatibility

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  2. Christopher R. Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," NBER Working Papers 12604, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Economides, Nicholas, 1989. "Desirability of Compatibility in the Absence of Network Externalities," American Economic Review, American Economic Association, vol. 79(5), pages 1165-81, December. [Downloadable!] (restricted)
  4. Astrid A. Dick, 2002. "Demand estimation and consumer welfare in the banking industry," Finance and Economics Discussion Series 2002-58, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  7. Nadia Massoud & Dan Bernhardt, 2002. ""Rip-Off" ATM Surcharges," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 96-115, Spring.
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  11. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer. [Downloadable!] (restricted)
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  13. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July. [Downloadable!] (restricted)
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  16. Harikesh Nair & Pradeep Chintagunta & Jean-Pierre Dubé, 2004. "Empirical Analysis of Indirect Network Effects in the Market for Personal Digital Assistants," Quantitative Marketing and Economics, Springer, vol. 2(1), pages 23-58, 03. [Downloadable!]
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  17. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June. [Downloadable!] (restricted)
  18. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer. [Downloadable!] (restricted)
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  20. Timothy H. Hannan & Ron Borzekowski, 2006. "Incompatibility and investment in ATM networks," Finance and Economics Discussion Series 2006-36, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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