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"Rip-Off" ATM Surcharges

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  • Nadia Massoud
  • Dan Bernhardt

Abstract

We develop a spatial model in which we endogenize both the pricing of ATM services by banks and the choice of home bank and ATM use by consumers. The equilibrium delivers the empirical regularities: Banks set high bank account fees for their own customers, but do not charge them for ATM usage; in contrast, banks charge high ATM fees for non-member users, fees that exceed those levels that would maximize ATM revenues from non-members; and larger banks set higher account fees and demand higher surcharges for ATM use than smaller banks. Paradoxically, (i) A bank's ATM revenues may fall short of its costs of ATM provision; and (ii) Prohibiting banks from surcharging non-members, by forcing banks to charge members and non-members the same ATM price, leads to higher ATM prices, greater bank profits and possibly reduced consumer welfare.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 1 (Spring)
Pages: 96-115

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Handle: RePEc:rje:randje:v:33:y:2002:i:spring:p:96-115

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Cited by:
  1. Christopher R. Knittel & Victor Stango, 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Working Papers, NET Institute 04-06, NET Institute, revised Oct 2004.
  2. Hannan, Timothy H., 2006. "Retail deposit fees and multimarket banking," Journal of Banking & Finance, Elsevier, Elsevier, vol. 30(9), pages 2561-2578, September.
  3. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series, Federal Reserve Bank of Chicago WP-03-33, Federal Reserve Bank of Chicago.
  4. Fumiko Hayashi & Zhu Wang, 2009. "Product innovation and network survival in the U.S. ATM and debit card network industry," Research Working Paper, Federal Reserve Bank of Kansas City RWP 08-14, Federal Reserve Bank of Kansas City.
  5. Christopher R. Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," Working Papers, NET Institute 06-08, NET Institute, revised Sep 2006.

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