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Regulation of ATM fees in a model of spatial competition

Author

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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.

Suggested Citation

  • Karen Kaiser & Carlos Lever Guzmán, 2011. "Regulation of ATM fees in a model of spatial competition," Working Papers 2011-09, Banco de México.
  • Handle: RePEc:bdm:wpaper:2011-09
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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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    More about this item

    Keywords

    Banking competition; ATM fees; bank regulation; retail banking.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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