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Regulation of ATM fees in a model of spatial competition

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  • Karen Kaiser
  • Carlos Lever Guzmán

Abstract

Following the Hotelling model of spatial competition used by Massoud and Bernhardt (2002) to analyze competition in ATM fees, in this paper we analyze the effects of banning fees on the usage of ATMs by account holders. We find that the prohibition also reduces the fees charged to non-account holders but increases fixed fees. This latter increase is on average smaller than the decrease of the former two, which leads total consumer welfare to increase. We also find that the prohibition decreases total surplus but that this decrease is absorbed by the banks' profits. The model does not consider the decision of banks to open or close down ATMs, which we leave for future research.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B46C84688-42C3-4C32-EDC6-192F87E68B0B%7D.pdf
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Bibliographic Info

Paper provided by Banco de México in its series Working Papers with number 2011-09.

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Date of creation: Sep 2011
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Handle: RePEc:bdm:wpaper:2011-09

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Web page: http://www.banxico.org.mx
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Keywords: Banking competition; ATM fees; bank regulation; retail banking.;

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