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Compatibility and pricing with indirect network effects: evidence from ATMs

  • Christopher R. Knittel
  • Victor Stango

Incompatibility in markets with indirect network effects can reduce consumers’ willingness to pay if they value “mix and match” combinations of complementary network components. For integrated firms selling complementary components, incompatibility should also strengthen the demand-side link between components. In this paper, we examine the effects of incompatibility using data from a classic market with indirect network effects: Automated Teller Machines (ATMs). Our sample covers a period during which higher ATM fees increased incompatibility between ATM cards and other banks’ ATM machines. We find that incompatibility led to lower willingness to pay for deposit accounts. We also find that incompatibility benefited firms with large ATM fleets.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-03-33.

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Date of creation: 2003
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Handle: RePEc:fip:fedhwp:wp-03-33
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