Incompatibility and investment in ATM networks

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Incompatibility and investment in ATM networks

Author Info

Timothy H. Hannan
Ron Borzekowski

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Abstract

The literature on network industries and network effects notes that incompatibility across rival systems can influence firms' incentives to invest in product changes that are beneficial to the consumer. We investigate this phenomenon in the case of bank ATM networks, where the number of ATM locations serves as the measure of product quality and surcharge fees serve as an index of incompatibility. Using as a natural experiment the lifting of a surcharge ban in Iowa (and not in neighboring states), we find that the associated increase in incompatibility for Iowa banks caused a substantial increase in the number of ATM locations offered to customers. This effect is found to be larger (in percentage terms) for larger banks than for smaller ones.

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Publisher Info
Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2006-36.

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Date of creation: 2006
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Handle: RePEc:fip:fedgfe:2006-36

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Article
- Timothy H. Hannan & Ron Borzekowski, 2007. "Incompatibility and Investment in ATM Networks," Review of Network Economics, Concept Economics, vol. 6(1), pages 1-15, March. [Downloadable!]

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-12-16 (All new papers)
NEP-BAN-2006-12-16 (Banking)
NEP-COM-2006-12-16 (Industrial Competition)
NEP-NET-2006-12-16 (Network Economics)

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring. [Downloadable!] (restricted)
Other versions:
- Joseph Farrell & Garth Saloner, 1984. "Standardization, Compatibility and Innovation," Working papers 345, Massachusetts Institute of Technology (MIT), Department of Economics.
Nadia Massoud & Dan Bernhardt, 2002. ""Rip-Off" ATM Surcharges," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 96-115, Spring.
Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February. [Downloadable!] (restricted)
Other versions:
- Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2002. "How Much Should We Trust Differences-in-Differences Estimates?," NBER Working Papers 8841, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Gautam Gowrisankaran & John Krainer, 2006. "The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model," NBER Working Papers 12443, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Other versions:
- Gautam Gowrisankaran & John Krainer, 2004. "The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model," Working Papers 04-16, NET Institute, revised Nov 2004. [Downloadable!]
- Gautam Gowrisankaran & John Krainer, 2004. "The welfare consequences of ATM surcharges: evidence from a structural entry model," Working Papers in Applied Economic Theory 2005-01, Federal Reserve Bank of San Francisco. [Downloadable!]
Christopher R. Knittel & Victor Stango, 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Working Papers 04-06, NET Institute, revised Oct 2004. [Downloadable!]
Other versions:
- Knittel, Christopher & Stango, Victor, 2005. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Working Papers 05-32, University of California at Davis, Department of Economics. [Downloadable!]
- Christopher R. Knittel & Victor Stango, 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," NBER Working Papers 10962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Timothy H. Hannan & Elizabeth K. Kiser & Robin A. Prager & James J. McAndrews, 2003. "To Surcharge or Not to Surcharge: An Empirical Investigation of ATM Pricing," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 990-1002, 09. [Downloadable!] (restricted)
Other versions:
- Timothy H. Hannan & Elizabeth K. Kiser & Robin A. Prager & James J. McAndrews, 2001. "To surcharge or not to surcharge: an empirical investigation of ATM pricing," Finance and Economics Discussion Series 2001-38, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Ferrari, S. & Verboven, F.L. & Degryse, H.A., 2007. "Investment and Usage of New Technologies: Evidence from a Shared ATM Network," Discussion Paper 2007-035, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
Other versions:
- Degryse, Hans & Ferrari, Stijn & Verboven, Frank, 2007. "Investment and Usage of New Technologies: Evidence from a Shared ATM Network," CEPR Discussion Papers 6592, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
- Ferrari, S. & Verboven, F.L. & Degryse, H.A., 2008. "Investment and Usage of New Technologies: Evidence from a Shared ATM Network," Discussion Paper 2008-1, Tilburg University, Center for Economic Research. [Downloadable!]
repec:bep:eapadv:v:8:y:2008:i:1:p:1731-1731 is not listed on IDEAS
María Fernanda Viecens, 2009. "Compatibility with Firm Dominance," Working Papers 2009-12, FEDEA. [Downloadable!]
Fumiko Hayashi & Zhu Wang, 2008. "Product innovation and firm survival in a network industry," Research Working Paper RWP 08-14, Federal Reserve Bank of Kansas City. [Downloadable!]
Donze, Jocelyn & Dubec, Isabelle, 2009. "La tarification des retraits aux distributeurs automatiques bancaires, une revue de la littérature
[ATM withdrawal pricing, a survey of the literature]," MPRA Paper 16546, University Library of Munich, Germany. [Downloadable!]

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