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Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs

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  • Knittel Christopher R.

    (University of California, Davis)

  • Stango Victor

    (Tuck School of Business at Dartmouth College)

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.

Suggested Citation

  • Knittel Christopher R. & Stango Victor, 2008. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-42, January.
    • Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:1
    DOI: 10.2202/1935-1682.1731
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    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L8 - Industrial Organization - - Industry Studies: Services
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • L4 - Industrial Organization - - Antitrust Issues and Policies

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