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The role of the interchange fee on the effect of forbidding price discrimination of ATM services

Author

Listed:
  • Ramón Faulí-Oller

    (Universidad de Alicante)

Abstract

We consider whether banks should be allowed to set different ATM prices to their customers depending on whether they hold an account on the bank. In Massoud and Bernhardt (2002), without considering an interchange fee, a ban on price discrimination on ATM services increases total surplus. In the present model that considers an interchange fee, the effect of a ban on price discrimination depends on the way the interchange is fixed. If it is fixed to maximize the profits of banks, forbidding price discrimination reduces total surplus. However, if the interchange is fixed to maximize total surplus, banning price discrimination increases total surplus.

Suggested Citation

  • Ramón Faulí-Oller, 2008. "The role of the interchange fee on the effect of forbidding price discrimination of ATM services," Working Papers. Serie AD 2008-03, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasad:2008-03
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    File URL: http://www.ivie.es/downloads/docs/wpasad/wpasad-2008-03.pdf
    File Function: Fisrt version / Primera version, 2008
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    Cited by:

    1. Vadym Lepetyuk & Christian A. Stoltenberg, 2013. "Policy Announcements and Welfare," Economic Journal, Royal Economic Society, vol. 123, pages 962-997, September.

    More about this item

    Keywords

    ATM; surcharge; foreign fee; interchange fee; collusion.;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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