How does incompatibility affect prices?: Evidence from ATM's

Abstract

If consumers value 'mix and match' combinations of network complements, incompatibility between different sellers' components should affect prices. In ATM markets, a 1996 governance change exogenously generated such incompatibility, by allowing banks to impose surcharges when other banks' deposit customers use their ATM's. In our data, incompatibility makes the relationship between deposit account pricing and own ATM's more positive, and makes the relationship between deposit account pricing and competitors ATM's more negative. The level effect on prices is positive. The pattern of results is more pronounced in high population density markets, where customers may care more about ATM's. © 2009 Blackwell Publishing Ltd.