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Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs

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  • Christopher R. Knittel
  • Victor Stango

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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Bibliographic Info

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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Publication status: published as Knittel Christopher R. & Stango Victor, 2008. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, January.
Handle: RePEc:nbr:nberwo:10962

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