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Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs

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  • Christopher Knittel
  • Victor Stango

    (Department of Economics, University of California Davis)

Abstract

Incompatibility in markets with indirect network e¤ects can a¤ect prices if consumers value ?mix and match?combinations of complementary network components. In this paper, we exam- ine the e¤ects of incompatibility using data from a classic market with indirect network e¤ects: Automated Teller Machines (ATMs). Our sample covers a period during which higher ATM fees increased incompatibility between ATM cards (which are bundled with deposit accounts) and other banks?ATM machines. A series of hedonic regressions suggests that incompatibility strengthens the relationship between deposit account pricing and own ATMs, and weakens the relationship between deposit account pricing and competitors?ATMs. The e¤ects of incom- patibility are stronger in areas with high population density, suggesting that high travel costs increase both the strength of network e¤ects and the importance of incompatibility in ATM markets.

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Bibliographic Info

Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 525.

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Length: 36
Date of creation: 01 Oct 2005
Date of revision:
Handle: RePEc:cda:wpaper:05-25

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Keywords: atm; network effects;

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