Endogenous ATM Networks and Pricing

32 Pages Posted: 7 May 2006  

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics

Nadia Massoud

Melbourne Business School, University of Melbourne

Date Written: July 24, 2005

Abstract

We develop a novel spatial model in which we endogenize the choice by banks of both (i) how to price banking services, and (ii) how many ATMs to provide. The feature of the spatial model that makes it possible to solve for equilibrium pricing and location choices is that consumers receive bank-specific location shocks. Consistent with the recent proliferation of ATMs and findings in the empirical literature, we find that in equilibrium, banks over-provide ATMs. Banks do so because they extract profits more efficiently from bank members through bank account fees than from ATM use by members (depositors) of other banks,and a more developed ATM network raises the attraction of establishing an account with the bank. Surprisingly,over-provision of ATMs rises when the ATM network choice is made prior to pricing decisions.

Keywords: ATMs, ATM surcharges, ATM network , Retail payment system

Suggested Citation

Bernhardt, Dan and Massoud, Nadia, Endogenous ATM Networks and Pricing (July 24, 2005). Available at SSRN: https://ssrn.com/abstract=899460 or http://dx.doi.org/10.2139/ssrn.899460

Dan Bernhardt

University of Illinois at Urbana-Champaign - Department of Economics ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
217-244-5708 (Phone)

Nadia Massoud (Contact Author)

Melbourne Business School, University of Melbourne ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia
+61 3 9349 8130 (Phone)
+61 3 9349 8136 (Fax)

HOME PAGE: http://mbs.edu/facultyresearch/facultydirectory/Pages/NadiaMassoud.aspx

Paper statistics

Downloads
189
Rank
130,551
Abstract Views
1,288