Working Paper: NBER ID: w10962
Authors: Christopher R. Knittel; Victor Stango
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.
Keywords: ATM; incompatibility; consumer welfare; network effects
JEL Codes: L1; L4; L8
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Incompatibility (L15) | Consumer Welfare (D69) |
| ATM Fees (G29) | Consumer Welfare (D69) |
| ATM Deployment (G21) | Consumer Welfare (D69) |
| Incompatibility (L15) | ATM Deployment (G21) |
| ATM Deployment (High Density) (G21) | Consumer Welfare (D69) |
| Incompatibility (Low Density) (L15) | Consumer Welfare (D69) |