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

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  • 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.))

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. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

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

Volume (Year): 85 (2003)
Issue (Month): 4 (November)
Pages: 990-1002

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Handle: RePEc:tpr:restat:v:85:y:2003:i:4:p:990-1002

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Web page: http://mitpress.mit.edu/journals/

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References

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  1. 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.
  2. 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.
  3. Robin Prager, 2001. "The Effects of ATM Surcharges on Small Banking Organizations," Review of Industrial Organization, Springer, vol. 18(2), pages 161-173, March.
  4. James J. McAndrews, 1991. "The evolution of shared ATM networks," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-16.
  5. Allen N. Berger & Timothy H. Hannan, 1987. "The price-concentration relationship in banking," Research Papers in Banking and Financial Economics 100, Board of Governors of the Federal Reserve System (U.S.).
  6. Garth Saloner & Andrea Shepard, 1995. "Adoption of Technologies with Network Effects: An Empirical Examination of the Adoption of Teller Machines," RAND Journal of Economics, The RAND Corporation, vol. 26(3), pages 479-501, Autumn.
  7. Paul S. Calem & Gerald A. Carlino, 1989. "The concentration/conduct relationship in bank deposit markets," Working Papers 89-26, Federal Reserve Bank of Philadelphia.
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Cited by:
  1. 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.).
  2. Christopher Knittel & Victor Stango, 2006. "Strategic Incompatibility in ATM Markets," Working Papers 629, University of California, Davis, Department of Economics.
  3. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA.
  4. Knittel, Christopher R., 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Santa Cruz Department of Economics, Working Paper Series qt4z54r2s3, Department of Economics, UC Santa Cruz.
  5. Carbó Valverde Santiago & Massoud Nadia & Rodríguez-Fernández Francisco & Saunders Anthony & Scholnick Barry, 2007. "The Economics of Credit Cards, Debit Cards and ATMs: A Survey and Some New Evidence," Working Papers 201074, Fundacion BBVA / BBVA Foundation.
  6. Timothy H. Hannan & Robert M. Adams, 2011. "Consumer Switching Costs And Firm Pricing: Evidence From Bank Pricing Of Deposit Accounts," Journal of Industrial Economics, Wiley Blackwell, vol. 59(2), pages 296-320, 06.
  7. Timothy H. Hannan & Ron Borzekowski, 2006. "Incompatibility and investment in ATM networks," Finance and Economics Discussion Series 2006-36, Board of Governors of the Federal Reserve System (U.S.).
  8. Christopher R. Knittel & Victor Stango, 2004. "Compatibility and Pricing with Indirect Network Effects: Evidence from ATMs," NBER Working Papers 10774, National Bureau of Economic Research, Inc.
  9. Fumiko Hayashi & Rick Sullivan & Stuart E. Weiner, 2006. "A guide to the ATM and debit card industry - 2006 update," Monograph, Federal Reserve Bank of Kansas City, number 2006agttaadci2.
  10. Fumiko Hayashi & Zhu Wang, 2009. "Product innovation and network survival in the U.S. ATM and debit card network industry," Research Working Paper RWP 08-14, Federal Reserve Bank of Kansas City.
  11. Humphrey, David B., 2010. "Retail payments: New contributions, empirical results, and unanswered questions," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1729-1737, August.

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