1 / 8

Strategic Coalitions in ATM Markets: Incentives and Effects

This paper examines the formation of coalitions in retail banking, specifically focusing on the conditions under which banks find it profitable to make agreements to ban foreign and surcharge fees. The study utilizes a model where consumers face transportation costs and have probabilities of finding ATMs of different banks. The results show that strategic coalitions are more likely for banks with higher gross utility from general service and higher probabilities of finding ATMs. Consumer surplus is lower but overall welfare is higher under coalitions. The paper also discusses the impact of investments in ATM networks on coalition formation and explores possible extensions, such as studying coalitions in markets with three or more members and considering network externalities.

dculpepper
Download Presentation

Strategic Coalitions in ATM Markets: Incentives and Effects

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. On the incentives to Form Strategic Coalitions in ATM Markets, by T. Wenzel-Comments by M. Manant CNAM October 25, 2007

  2. Aim of the paper: Study the formation of coalitions in retail banking. • Questions: Under which conditions is it profitable for banks to make agreements to ban foreign and surcharge fees? • Two effects of forming a coalition:  - reduces the incomes from ATM transactions,  - weakens competition.

  3. The model: Consumers uniformly located on the line (location denoted x) face a linear cost of transportation. Case of asymmetric networks where consumers have a probability Pi to find an ATM of bank i. Two kinds of services: general banking services and ATM services.

  4. Timing: Stage 1: Banks decide or not to enter the coalition. Stage 2: Banks decide cooperatively on interchange fees. Stage 3: Banks set non-cooperatively account fees. Stage 4: Consumers decide to open or not an account. Stage 5: Banks decide non-cooperatively on ATM usage fees in the case of no coalition. Stage 6: Consumers decide on ATM use.

  5. Results: Basic model (Pi = Pj = P) • A strategic coalition is more likely for higher values of V (gross utility from general service) and higher values of P. • Consumer surplus is lower and welfare is higher under coalition. Asymmetric model (P1 > P2) • The bank with a smaller network has a larger incentive to form a coalition. Investments in ATM networks • Banks have weaker incentives to form a coalition when they can invest in ATM networks than when they can not.

  6. Questions: • About the definition of the expression “strategic ATM coalition”? • what means strategic in this context? • does a coalition suppose at least 3 members? • Stylized facts. How banks justify that they take part to banking networks? • The timing: what would it change if we invert stage 4 and stage 5? • Possible extensions • study of coalition in a market with 3 or more. • consider network externalities.

More Related