Incompatibility, Product Attributes and Consumer Welfare: Evidence from Atms

44 Pages Posted: 19 Dec 2004 Last revised: 23 Aug 2014

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

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Date Written: December 2004

Abstract

Incompatibility in market 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 while ATM fees ceteris paribus reduce the network benefit from other banks' ATMs, a surge in ATM deployment accompanies the shift to surcharging. This is valuable to consumers and 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. and Stango, Victor, Incompatibility, Product Attributes and Consumer Welfare: Evidence from Atms (December 2004). NBER Working Paper No. w10962, Available at SSRN: https://ssrn.com/abstract=633623

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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