Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs / Christopher R. Knittel, Victor Stango.

Format:

Book

Author/Creator:

Knittel, Christopher R.

Contributor:

National Bureau of Economic Research.

Stango, Victor.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10774.

NBER working paper series no. w10774

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Compatibility and Pricing with Indirect Network Effects

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

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.

Notes:

Print version record

September 2004.