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Competition before sunset: The case of the Finnish ATM market

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  • Kopsakangas-Savolainen, Maria
  • Takalo, Tuomas

Abstract

We build a simple model to study service fee competition between an incumbent and an independent ATM deployer, and its optimal regulation. We use the model to analyze an actual regulation of such a market by competition authorities in Finland. We find that socially optimal first-best fees would imply negative profits for the independent deployer, calling for a Ramsey regulation. While the Finnish regulation pushes the foreign fee downwards towards its socially optimal level, the regulated fees are likely to remain too high from the welfare point of view. In contrast with the actual regulation, it would be essential to regulate the independent deployer's interchange fee, as the incumbent deployer internalizes the effect of its foreign fee on consumer usage of the rival's network and has little incentive for foreclosure.

Suggested Citation

  • Kopsakangas-Savolainen, Maria & Takalo, Tuomas, 2012. "Competition before sunset: The case of the Finnish ATM market," Bank of Finland Research Discussion Papers 32/2012, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2012_032
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    References listed on IDEAS

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    1. Jocelyn Donze & Isabelle Dubec, 2009. "Paying For Atm Usage: Good For Consumers, Bad For Banks?," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 583-612, September.
    2. Stijn Ferrari & Frank Verboven & Hans Degryse, 2010. "Investment and Usage of New Technologies: Evidence from a Shared ATM Network," American Economic Review, American Economic Association, vol. 100(3), pages 1046-1079, June.
    3. Donze Jocelyn & Dubec Isabelle, 2011. "ATM Direct Charging Reform: the Effect of Independent Deployers on Welfare," Review of Network Economics, De Gruyter, vol. 10(2), pages 1-23, June.
    4. Donze, Jocelyn & Dubec, Isabelle, 2010. "The effects of regulating interchange fees at cost on the ATM market," Economics Letters, Elsevier, vol. 107(2), pages 187-189, May.
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    6. Tobias Wenzel, 2014. "Independent Service Operators in ATM Markets," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(1), pages 26-47, February.
    7. Schmiedel, Heiko & Kostova, Gergana & Ruttenberg, Wiebe, 2012. "The social and private costs of retail payment instruments: a European perspective," Occasional Paper Series 137, European Central Bank.
    8. Hyytinen Ari & Takalo Tuomas, 2009. "Consumer Awareness and the Use of Payment Media: Evidence from Young Finnish Consumers," Review of Network Economics, De Gruyter, vol. 8(2), pages 1-25, June.
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      • Alexei Alexandrov, 2006. "Fat Products," Discussion Papers 1435, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Ioana Chioveanu & Ramon Fauli‐Oller & Joel Sandonis & Juana Santamaria, 2009. "Atm Surcharges: Effects On Deployment And Welfare," Journal of Industrial Economics, Wiley Blackwell, vol. 57(3), pages 613-635, September.
    11. repec:zbw:bofrdp:2012_032 is not listed on IDEAS
    12. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: I. Overview and Nondiscriminatory Pricing," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 1-37, Spring.
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    14. Gene Amromin & Sujit Chakravorti, 2007. "Debit card and cash usage: a cross-country analysis," Working Paper Series WP-07-04, Federal Reserve Bank of Chicago.
    15. Donze, Jocelyn & Dubec, Isabelle, 2006. "The role of interchange fees in ATM networks," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 29-43, January.
    16. Verdier, Marianne, 2012. "Interchange fees and inefficiencies in the substitution between debit cards and cash," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 682-696.
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    Cited by:

    1. Markkula, Tuomas & Takalo, Tuomas, 2021. "Competition and regulation in the Finnish ATM industry," BoF Economics Review 8/2021, Bank of Finland.

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