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Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs

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Author Info
Christopher R. Knittel
Victor Stango

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Abstract

Incompatibility in market 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 while ATM fees ceteris paribus reduce the network benefit from other banks' ATMs, a surge in ATM deployment accompanies the shift to surcharging. This is valuable to consumers and 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10962.

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Date of creation: Dec 2004
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Handle: RePEc:nbr:nberwo:10962

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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

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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.)

  1. Donze, Jocelyn & Dubec, Isabelle, 2008. "Paying for ATM usage : good for consumers, bad for banks ?," MPRA Paper 10892, University Library of Munich, Germany. [Downloadable!]
  2. Christopher R. Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," NBER Working Papers 12604, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. 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!]
    Other versions:
  4. Chun-Yu Ho, 2007. "Deregulation, Competition and Consumer Welfare in Banking Market: Evidence from Hong Kong," Working Papers 242007, Hong Kong Institute for Monetary Research. [Downloadable!]
  5. Christopher R. Knittel & Victor Stango, 2004. "Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs," NBER Working Papers 10774, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. 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:
  7. Wilko Bolt & David Humphrey & Roland Uittenbogaard, 2008. "Transaction Pricing and the Adoption of Electronic Payments: A Cross-Country Comparison," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 89-123, March. [Downloadable!]
  8. 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!]
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