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Investment and Usage of New Technologies: Evidence from a Shared ATM Network

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Author Info
Ferrari, S.
Verboven, F.L.
Degryse, H.A. (Tilburg University, Tilburg Law and Economics Center)

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Abstract

When new technologies become available, it is not only essential that firms have the correct investment incentives, but often also that consumers make the proper usage decisions. This paper studies investment and usage in a shared ATM network. Be- cause all banks coordinate their ATM investment decisions, there is no strategic but only a pure cost-saving incentive to invest. At the same time, because retail fees for cash withdrawals are regulated to zero at both branches and ATMs, consumers may not have the proper incentives to substitute their transactions from branches to the available ATMs. We develop an empirical model of coordinated investment and cash withdrawal demand, where banks choose the number of ATMs and consumers decide whether to withdraw cash at ATMs or branches. We find that banks substantially underinvested in the shared ATM network and thus provided too little geographic coverage. This contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility. Furthermore, we find that consumer usage of the avail- able ATM network is too low because of the zero retail fees for cash withdrawals at branches. A direct promotion of investment (through subsidies or other means) can improve welfare, but the introduction of retail fees on cash withdrawals at branches would be more e¤ective, even if this does not encourage investment per se.

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Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2007-035.

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Date of creation: 2007
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Handle: RePEc:dgr:kubtil:2007035

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  4. Howard Smith & Catherine O'Gorman, 2008. "Efficiency Gain from Ownership Deregulation: Estimates for the Radio Industry," Economics Series Working Papers 385, University of Oxford, Department of Economics. [Downloadable!]
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  5. Jean M. Abraham & Martin S. Gaynor & William B. Vogt, 2005. "Entry and Competition in Local Hospital Markets," NBER Working Papers 11649, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. 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)
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  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.). [Downloadable!]
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  8. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc. [Downloadable!]
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