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Naive Consumers, Banking Competition, and ATM Pricing

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  • Wenzel Tobias

    () (Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE), Universitätsstrasse 1, 40225 Düsseldorf, Germany)

Abstract

This paper studies the performance of a direct charging regime in the ATM market in the presence of uninformed consumers who fail to recognize all relevant fees when selecting a bank. We show that the success of a direct charging regime critically depends on consumer information: the equilibrium surcharge fee is increasing in the number of uninformed consumers. If consumers are poorly informed, banking competition is weakened and prices for banking services are high. We discuss various regulatory interventions to improve market performance. We show that regulating the surcharge fee is an effective policy while intensifying competition (entry of additional banks or of independent service operators) fails to improve the outcome.

Suggested Citation

  • Wenzel Tobias, 2013. "Naive Consumers, Banking Competition, and ATM Pricing," Review of Network Economics, De Gruyter, vol. 12(3), pages 271-286, October.
  • Handle: RePEc:bpj:rneart:v:12:y:2013:i:3:p:271-286:n:2
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    References listed on IDEAS

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    1. Spiegler, Ran, 2014. "Bounded Rationality and Industrial Organization," OUP Catalogue, Oxford University Press, number 9780199334261.
    2. Donze, Jocelyn & Dubec, Isabelle, 2008. "Paying for ATM usage : good for consumers, bad for banks ?," MPRA Paper 10892, University Library of Munich, Germany.
    3. Jeffrey D. Shulman & Xianjun Geng, 2013. "Add-on Pricing by Asymmetric Firms," Management Science, INFORMS, vol. 59(4), pages 899-917, April.
    4. Donze Jocelyn & Dubec Isabelle, 2011. "ATM Direct Charging Reform: the Effect of Independent Deployers on Welfare," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-23, June.
    5. Ioana Chioveanu & Ramon Fauli-Oller & Joel Sandonis & Juana Santamaria, 2009. "ATM SURCHARGES: EFFECTS ON DEPLOYMENT AND WELFARE -super-," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 613-635, September.
    6. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
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    Cited by:

    1. Tobias Wenzel, 2014. "Independent Service Operators in ATM Markets," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(1), pages 26-47, February.
    2. Crosetto, P. & Gaudeul, A., 2014. "Choosing whether to compete: Price and format competition with consumer confusion," Working Papers 2014-08, Grenoble Applied Economics Laboratory (GAEL).

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