The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model

Joint with: John Drainer

Over the past 20 years, automatic teller machines (ATMs) have become an ubiquitous component of consumer banking. Despite their vast presence, ATM prices have risen substantially over the last several years. The rise in prices together with the inherent geographic product differentiation for ATMs imply that the current market structure may not be optimal. For instance, the market

may reflect excess entry, where the sum of total consumer and producer surplus would be higher with less ATMs and lower prices. The purpose of this study is to estimate a structural model of the market for ATMs using data on consumer locations and actual and potential ATM locations

and to investigate the welfare consequences of ATM price regulations using this model. We model consumers as making a discrete choice of ATMs given a utility function that depends on price and distance, and potential ATMs as choosing entry and price in a simultaneous Bayesian-

Nash equilibrium. We estimate the parameters of this model using data from the Minnesota-Iowa border. We develop a simulation-based likelihood estimator that is identified by the quasiexperimental variation created by the fact that Iowa fixed the price of ATMs during our sample

period while Minnesota did not.

For more information, contact Jere Behrman.