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Compatibility and pricing with indirect network effects: evidence from ATMs

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  • Christopher R. Knittel
  • Victor Stango

Abstract

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.

Suggested Citation

  • Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-03-33
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    References listed on IDEAS

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    Keywords

    Automated tellers;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services

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