Investment and Usage of New Technologies: Evidence from a Shared ATM Network

TILEC Discussion Paper No. 2007-035

CentER Discussion Paper No. 2008-01

45 Pages Posted: 17 Dec 2007

See all articles by Stijn Ferrari

Stijn Ferrari

KU Leuven

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance; Centre for Economic Policy Research (CEPR)

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2007

Abstract

When new technologies become available, it is not only essential that firms 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 find that banks substantially underinvested in the shared ATM network and thus provided too little geographic coverage. This contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility. Furthermore, we find 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 effective, even if this does not encourage investment per se.

Keywords: technology investment, usage, efficiency, ATM, empirical industrial organisation and structural econometric models

JEL Classification: L10, L89, G21, L50

Suggested Citation

Ferrari, Stijn and Degryse, Hans and Verboven, Frank, Investment and Usage of New Technologies: Evidence from a Shared ATM Network (November 2007). TILEC Discussion Paper No. 2007-035; CentER Discussion Paper No. 2008-01. Available at SSRN: https://ssrn.com/abstract=1075042 or http://dx.doi.org/10.2139/ssrn.1075042

Stijn Ferrari (Contact Author)

KU Leuven ( email )

Naamsestraat 69
B-3000 Leuven, 3000
Belgium

Hans Degryse

KU Leuven, Department Accounting, Finance and Insurance ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Frank Verboven

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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