Compatibility and Pricing with Indirect Network Effects: Evidence from Atms

41 Pages Posted: 30 Jan 2004

See all articles by Christopher R. Knittel

Christopher R. Knittel

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Victor Stango

UC Davis Graduate School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 2003

Abstract

Incompatibility in markets with indirect network effects can reduce consumers' willingness to pay if they value "mix and match" combinations of complementary network components. For integrated firms selling complementary components, incompatibility should also strengthen the demand-side link between 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 and other banks' ATM machines. We find that incompatibility led to lower willingness to pay for deposit accounts. We also find that incompatibility benefited firms with large ATM fleets.

Suggested Citation

Knittel, Christopher R. and Stango, Victor, Compatibility and Pricing with Indirect Network Effects: Evidence from Atms (December 2003). FRB of Chicago Working Paper No. 2003-33. Available at SSRN: https://ssrn.com/abstract=486986 or http://dx.doi.org/10.2139/ssrn.486986

Christopher R. Knittel (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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National Bureau of Economic Research (NBER)

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Victor Stango

UC Davis Graduate School of Management ( email )

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Davis, CA 95616
United States

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