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"'Rip-off' ATM Surcharges"

Nadia Massoud and Dan Bernhardt


First Author :

Nadia Massoud
University of Alberta School of Business

Second Author :

Dan Bernhardt
University of Illinois at Urbana-Champaign
1206 S. Sixth Street, M/C 706
Champaign, IL 61820

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Abstract :
We develop a spatial model in which we endogenize both the pricing of ATM services by banks and the choice of home bank and ATM use by consumers. The equilibrium delivers the empirical regularities: Banks set high bank account fees for their own customers, but do not charge them for ATM usage; in contrast, banks charge high ATM fees for non-members users, fees that exceed those levels that would maximize ATM revenues from non-members; and larger banks set higher account fees and demand higher surcharges for ATM use than smaller banks. Paradoxically, we find that (i) A bank’s ATM revenues may fall short of its costs of ATM provision; and (ii) Prohibiting banks from surcharging non-members, by forcing banks to charge members and non-members the same ATM price, leads to higher ATM prices, greater bank profits, and reduced consumer welfare.
Manuscript Received : 2000
Manuscript Published : 2000
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