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Investment and usage of new technologies: evidence form a shared ATM network

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  • Stijn Ferrari
  • Frank Verboven
  • Hans Degryse

Abstract

When new technologies become available, it is not only essential that .rms 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. Because 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 .nd that banks substantially underinvested in the shared ATM network and thus provided too little geographic coverage. This contrasts with earlier .ndings of strategic overinvestment in networks with partial incompatibility. Furthermore, we .nd that consumer usage of the available 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.

Suggested Citation

  • Stijn Ferrari & Frank Verboven & Hans Degryse, 2007. "Investment and usage of new technologies: evidence form a shared ATM network," Working Papers Department of Economics ces0731, KU Leuven, Faculty of Economics and Business, Department of Economics.
  • Handle: RePEc:ete:ceswps:ces0731
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    References listed on IDEAS

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    Cited by:

    1. Fumiko Hayashi & Bin Grace Li & Zhu Wang, 2017. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 180-203, October.
    2. Laura Nurski & Frank Verboven, 2016. "Exclusive Dealing as a Barrier to Entry? Evidence from Automobiles," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 1156-1188.
    3. Francisco J. Callado-Muñoz & Jana Hromcová & Natalia Utrero-González, 2014. "Effects of Institutional Environment and Technology Development on Payment Choice," Working Papers wpdea1403, Department of Applied Economics at Universitat Autonoma of Barcelona.
    4. Patrick Sun, 2014. "Quality Competition in Mobile Telecommunications: Evidence from Connecticut," Working Papers 14-05, NET Institute.
    5. Stijn Ferrari, 2010. "Discriminatory fees, coordination and investment in shared ATM networks," Working Paper Research 184, National Bank of Belgium.
    6. Pavan, Giulia, 2017. "Green Car Adoption and the Supply of Alternative Fuels," TSE Working Papers 17-875, Toulouse School of Economics (TSE).
    7. Hasan, Iftekhar & Martikainen, Emmi & Takalo, Tuomas, 2014. "Promoting efficient retail payments in Europe," Research Discussion Papers 20/2014, Bank of Finland.
    8. Magnac, Thierry, 2017. "ATM foreign fees and cash withdrawals," Journal of Banking & Finance, Elsevier, vol. 78(C), pages 117-129.
    9. Kopsakangas-Savolainen Maria & Takalo Tuomas, 2014. "Competition Before Sunset: The Case of the Finnish ATM Market," Review of Network Economics, De Gruyter, vol. 13(1), pages 1-33, March.
    10. Nurski, Laura & Verboven, Frank, 2014. "Incumbency advantages, distribution networks and exclusivity — Evidence from the European car markets," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 75-79.

    More about this item

    Keywords

    new technology; ATM network;

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L89 - Industrial Organization - - Industry Studies: Services - - - Other
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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