Fees and Surcharging in automatic teller machine networks: Non-bank ATM providers versus large banks

Elizabeth W. Croft, Barbara J. Spencer

NBER Working Paper No. 9883
Issued in August 2003
NBER Program(s):   IO

This paper develops a spacial model of ATM networks to explore the implications for banks and non-banks of interchange fees, foreign fees and surcharges applied to transactions by customers at other than an own-bank ATM. Surcharging raises the price (foreign fee plus surcharge) paid by customers above the joint profit-maximizing level achieved by setting the interchange fee at marginal cost and not surcharging. Similar size banks would agree not to surcharge, but such an agreement is typically not possible between a bank and a non-bank. A high cost of teller transactions modifies the tendency towards high ATM fees.

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