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Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs

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Author Info
Christopher R. 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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File URL: http://www.bepress.com/cgi/viewcontent.cgi?article=1731&context=bejeap
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Publisher Info
Article provided by Berkeley Electronic Press in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 ()
Pages:
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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:1

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Related research
Keywords: network effects; ATMs; incompatibility;

Find related papers by JEL classification:
L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
L4 - Industrial Organization - - Antitrust Issues and Policies
L8 - Industrial Organization - - Industry Studies: Services

References listed on IDEAS
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    Other versions:
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    Other versions:
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