Work

Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs

Year: 2008

Type: article

Abstract: Incompatibility in markets with network effects reduces consumers' ability to "mix and match" components offered by different sellers, but can also spur changes in product attributes that might benefit consumers. In this paper, we estimate the effects of incompatibility on consumers in a classic hardware/software market: ATM cards and machines. We find that ATM fees ceteris paribus reduce the network benefit from other banks' ATMs. However, a surge in ATM deployment accompanies the shift to surcharging. Even under conservative assumptions regarding how much of the surge is directly attributable to surcharging, greater deployment often completely offsets the harm from higher fees. The results suggest that policy discussions of incompatibility must consider not only its direct effect on consumers, but also its effect on product attributes.

Source: The B E Journal of Economic Analysis & Policy

DOI: 10.2202/1935-1682.1731

Authors: Christopher R. Knittel, Victor Stango

Institutions: National Bureau of Economic Research, Massachusetts Institute of Technology, University of California, Davis, Dartmouth College

Language: English

Topic: Digital Platforms and Economics

Subfield: Strategy and Management

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3122924357

FWCI: 13.82

Cites: 5

Cited by: 28

Related to: 10