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To Surcharge or Not to Surcharge: An Empirical Investigation of ATM Pricing

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Author Info
Timothy H. Hannan (Board of Governors of the Federal Reserve System (T.H.H., E.K.K., R.A.P.) and Federal Reserve Bank of New York (J.J.M.))
Elizabeth K. Kiser (Board of Governors of the Federal Reserve System (T.H.H., E.K.K., R.A.P.) and Federal Reserve Bank of New York (J.J.M.))
Robin A. Prager (Board of Governors of the Federal Reserve System (T.H.H., E.K.K., R.A.P.) and Federal Reserve Bank of New York (J.J.M.))
James J. McAndrews (Board of Governors of the Federal Reserve System (T.H.H., E.K.K., R.A.P.) and Federal Reserve Bank of New York (J.J.M.))

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Abstract

This paper investigates depository institutions' decisions whether or not to impose surcharges (direct usage fees) on nondepositors who use their ATMs. In addition to documenting patterns of surcharging, we examine motives for surcharging, including both direct generation of fee revenue and the potential to attract deposit customers who wish to avoid incurring surcharges at an institution's ATMs. Consistent with expectations, we find that the probability of surcharging increases with both the institution's share of market ATMs and the time since surcharging was first allowed in the state, and decreases with increasing local ATM density. Further, we find evidence consistent with the use of surcharges to attract deposit customers who are new to the local banking market, but we find no evidence that larger banks use surcharges as a means to attract existing customers away from smaller local competitors. Copyright (c) 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 85 (2003)
Issue (Month): 4 (09)
Pages: 990-1002
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Handle: RePEc:tpr:restat:v:85:y:2003:i:4:p:990-1002

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. James J. McAndrews, 1991. "The evolution of shared ATM networks," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-16. [Downloadable!]
  2. Nadia Massoud & Dan Bernhardt, 2002. ""Rip-Off" ATM Surcharges," RAND Journal of Economics, The RAND Corporation, vol. 33(1), pages 96-115, Spring.
  3. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-99, May. [Downloadable!] (restricted)
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  4. Steven D. Felgran & R. Edward Ferguson, 1986. "The evolution of retail EFT networks," New England Economic Review, Federal Reserve Bank of Boston, issue Jul, pages 42-56.
  5. Robin Prager, 2001. "The Effects of ATM Surcharges on Small Banking Organizations," Review of Industrial Organization, Springer, vol. 18(2), pages 161-173, March. [Downloadable!] (restricted)
  6. Calem, Paul S & Carlino, Gerald A, 1991. "The Concentration/Conduct Relationship in Bank Deposit Markets," The Review of Economics and Statistics, MIT Press, vol. 73(2), pages 268-76, May. [Downloadable!] (restricted)
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  7. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 1997. "Changes in the distribution of banking offices," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Sep, pages 707-725. [Downloadable!]
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gautam Gowrisankaran & John Krainer, 2004. "The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model," Working Papers 04-16, NET Institute, revised Nov 2004. [Downloadable!]
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  2. Christopher R. Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," NBER Working Papers 12604, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Timothy H. Hannan, 2005. "ATM surcharge bans and bank market structure: the case of Iowa and its neighbors," Finance and Economics Discussion Series 2005-46, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  4. Timothy H. Hannan & Ron Borzekowski, 2007. "Incompatibility and Investment in ATM Networks," Review of Network Economics, Concept Economics, vol. 6(1), pages 1-15, March. [Downloadable!]
    Other versions:
  5. Christopher R. Knittel & Victor Stango, 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," NBER Working Papers 10962, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  6. Christopher R. Knittel & Victor Stango, 2003. "Compatibility and pricing with indirect network effects: evidence from ATMs," Working Paper Series WP-03-33, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  7. repec:bep:eapadv:v:8:y:2008:i:1:p:1731-1731 is not listed on IDEAS
  8. Timothy H. Hannan, 2008. "Consumer switching costs and firm pricing: evidence from bank pricing of deposit accounts," Finance and Economics Discussion Series 2008-32, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  9. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA. [Downloadable!]
  10. Fumiko Hayashi & Zhu Wang, 2008. "Product innovation and firm survival in a network industry," Research Working Paper RWP 08-14, Federal Reserve Bank of Kansas City. [Downloadable!]
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