Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs

Christopher Knittel and Victor Stango
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Victor Stango: Department of Economics, University of California Davis

No 35, Working Papers from University of California, Davis, Department of Economics

Abstract: Incompatibility in markets with indirect network e¤ects can a¤ect prices if consumers value?mix and match?combinations of complementary network components. In this paper, we exam-ine the e¤ects of incompatibility using data from a classic market with indirect network e¤ects:Automated Teller Machines (ATMs). Our sample covers a period during which higher ATMfees increased incompatibility between ATM cards (which are bundled with deposit accounts)and other banks?ATM machines. A series of hedonic regressions suggests that incompatibilitystrengthens the relationship between deposit account pricing and own ATMs, and weakens therelationship between deposit account pricing and competitors?ATMs. The e¤ects of incom-patibility are stronger in areas with high population density, suggesting that high travel costsincrease both the strength of network e¤ects and the importance of incompatibility in ATMmarkets.

Keywords: atm; network effects (search for similar items in EconPapers)
JEL-codes: L1 L8 (search for similar items in EconPapers)
Pages: 36
Date: 2005-09-30
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Related works:
Working Paper: Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs (2004)
Working Paper: Compatibility and pricing with indirect network effects: evidence from ATMs (2003)
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