Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs

Christopher Knittel and Victor Stango

No 04-06, Working Papers from NET Institute

Abstract: Incompatibility in markets with network effects can either benefit or harm consumers. Incompatibility reduces consumers’ ability to “mix and match” components offered by different sellers, but can also be associated with changes in product attributes that might benefit consumers. In this paper, we estimate the effects of incompatibility in a classic hardware/software market: ATM cards and machines. Our empirical model allows us to measure the indirect network effect relating the value of ATM cards to ATM availability. It also allows us to measure the effects of incompatibility as measured by ATM fees. Our sample contains a relatively discrete move toward incompatibility after 1996, when banks began to impose surcharges on non-customers using their ATM machines. We provide estimates of the partial equilibrium effects of increased incompatibility on consumer welfare, finding that ATM fees ceteris paribus reduce the indirect network effect associated with other banks’ ATMs. However, a surge in ATM deployment accompanies the shift to surcharging and in many cases completely offsets the reduction in welfare associated with higher fees. This suggests that welfare analyses should consider the interaction between incompatibility and changes in product attributes.

Pages: 45 pages
Date: 2004-10, Revised 2004-10
New Economics Papers: this item is included in nep-ban, nep-com and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs (2008)
Working Paper: Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs (2005)
Working Paper: Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs (2005)
Working Paper: Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs (2004)
Working Paper: Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:0406

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