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On the incentives to form strategic coalitions in ATM markets

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  • Wenzel, Tobias

Abstract

This paper studies ATM coalitions in retail banking. We ask when it is profitable for banks to make agreements which ban direct ATM transaction fees. In the case of a coalition banks loose income from ATM transactions but relax competition in the banking market. We find that such agreements are profitable when the interchange fee is sufficiently high. When banks can collude on the interchange they always form a coalition. Coalitions may harm consumers but lead to higher total welfare. Moreover, we find that smaller banks have larger incentives to form ATM coalitions. Investment in ATM networks is typically higher with a coalition.

Suggested Citation

  • Wenzel, Tobias, 2008. "On the incentives to form strategic coalitions in ATM markets," FAU Discussion Papers in Economics 05/2008, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
  • Handle: RePEc:zbw:iwqwdp:052008
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    More about this item

    Keywords

    Banking competition; ATM networks; collusion;

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • G2 - Financial Economics - - Financial Institutions and Services

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