The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Incompatibility and Investment in ATM Networks
Timothy H. Hannan and Ron Borzekowski

Abstract: The literature on network industries and network effects notes that incompatibility across rival systems can influence firms' incentives to invest in product changes that are beneficial to the consumer. We investigate this phenomenon in the case of bank ATM networks, where the number of ATM locations serves as the measure of product quality and surcharge fees serve as an index of incompatibility. Using as a natural experiment the lifting of a surcharge ban in Iowa (and not in neighboring states), we find that the associated increase in incompatibility for Iowa banks caused a substantial increase in the number of ATM locations offered to customers. This effect is found to be larger (in percentage terms) for larger banks than for smaller ones.

Keywords: ATM networks, banks, compatibility

Full paper (179 KB PDF) | Full Paper (Screen Reader Version)

Home | FEDS | List of 2006 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: November 9, 2006