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

  • 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.))

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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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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  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. Prager, Robin A & Hannan, Timothy H, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence from the Banking Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 433-52, December.
  4. James J. McAndrews, 1991. "The evolution of shared ATM networks," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-16.
  5. 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.
  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.
  7. Robin Prager, 2001. "The Effects of ATM Surcharges on Small Banking Organizations," Review of Industrial Organization, Springer, vol. 18(2), pages 161-173, March.
  8. 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.
  9. Steven Pilloff & Stephen Rhoades, 2000. "Do Large, Diversified Banking Organizations Have Competitive Advantages?," Review of Industrial Organization, Springer, vol. 16(3), pages 287-302, May.
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