On the incentives to form strategic coalitions in ATM markets

Tobias Wenzel

No 05/2008, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

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.

Keywords: Banking competition; ATM networks; collusion (search for similar items in EconPapers)
JEL-codes: G2 L1 (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:052008

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