Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs

Christopher Knittel and Victor Stango

No 10774, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Incompatibility in markets with indirect network effects can affect prices if consumers value "mix and match" combinations of complementary network 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 (which are bundled with deposit accounts) and other banks' ATM machines. A series of hedonic regressions suggests that incompatibility strengthens the relationship between deposit account pricing and own ATMs, and weakens the relationship between deposit account pricing and competitors' ATMs. The effects of incompatibility are stronger in areas with high population density, suggesting that high travel costs increase both the strength of network effects and the importance of incompatibility in ATM markets.

JEL-codes: L1 L5 L8 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-com and nep-net
Note: PR
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Citations: View citations in EconPapers (30)

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Related works:
Working Paper: Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs (2005)
Working Paper: Compatibility and pricing with indirect network effects: evidence from ATMs (2003)
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