Investment and Usage of New Technologies

Evidence from a Shared ATM Network

S. Ferrari, F.L. Verboven, H.A. Degryse

Research output: Working paperDiscussion paperOther research output

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Abstract

When new technologies become available, it is not only essential that firms have the correct investment incentives, but often also that consumers make the proper usage decisions. This paper studies investment and usage in a shared ATM network. Be- cause all banks coordinate their ATM investment decisions, there is no strategic but only a pure cost-saving incentive to invest. At the same time, because retail fees for cash withdrawals are regulated to zero at both branches and ATMs, consumers may not have the proper incentives to substitute their transactions from branches to the available ATMs. We develop an empirical model of coordinated investment and cash withdrawal demand, where banks choose the number of ATMs and consumers decide whether to withdraw cash at ATMs or branches. We find that banks substantially underinvested in the shared ATM network and thus provided too little geographic coverage. This contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility. Furthermore, we find that consumer usage of the avail- able ATM network is too low because of the zero retail fees for cash withdrawals at branches. A direct promotion of investment (through subsidies or other means) can improve welfare, but the introduction of retail fees on cash withdrawals at branches would be more effective, even if this does not encourage investment per se.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages45
Volume2008-1
Publication statusPublished - 2008

Publication series

NameCentER Discussion Paper
Volume2008-1

Fingerprint

Asynchronous transfer mode
Cash
Retail
Fees
Incentives
Cost savings
Investment decision
Substitute
Investment incentives
Subsidies
Empirical model
Overinvestment
Incompatibility

Keywords

  • technology investment
  • usage
  • efficiency
  • ATM
  • empirical industrial or- ganisation and structural econometric models

Cite this

Ferrari, S., Verboven, F. L., & Degryse, H. A. (2008). Investment and Usage of New Technologies: Evidence from a Shared ATM Network. (CentER Discussion Paper; Vol. 2008-1). Tilburg: Finance.
Ferrari, S. ; Verboven, F.L. ; Degryse, H.A. / Investment and Usage of New Technologies : Evidence from a Shared ATM Network. Tilburg : Finance, 2008. (CentER Discussion Paper).
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Ferrari, S, Verboven, FL & Degryse, HA 2008 'Investment and Usage of New Technologies: Evidence from a Shared ATM Network' CentER Discussion Paper, vol. 2008-1, Finance, Tilburg.

Investment and Usage of New Technologies : Evidence from a Shared ATM Network. / Ferrari, S.; Verboven, F.L.; Degryse, H.A.

Tilburg : Finance, 2008. (CentER Discussion Paper; Vol. 2008-1).

Research output: Working paperDiscussion paperOther research output

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T1 - Investment and Usage of New Technologies

T2 - Evidence from a Shared ATM Network

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AU - Verboven, F.L.

AU - Degryse, H.A.

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AB - When new technologies become available, it is not only essential that firms have the correct investment incentives, but often also that consumers make the proper usage decisions. This paper studies investment and usage in a shared ATM network. Be- cause all banks coordinate their ATM investment decisions, there is no strategic but only a pure cost-saving incentive to invest. At the same time, because retail fees for cash withdrawals are regulated to zero at both branches and ATMs, consumers may not have the proper incentives to substitute their transactions from branches to the available ATMs. We develop an empirical model of coordinated investment and cash withdrawal demand, where banks choose the number of ATMs and consumers decide whether to withdraw cash at ATMs or branches. We find that banks substantially underinvested in the shared ATM network and thus provided too little geographic coverage. This contrasts with earlier findings of strategic overinvestment in networks with partial incompatibility. Furthermore, we find that consumer usage of the avail- able ATM network is too low because of the zero retail fees for cash withdrawals at branches. A direct promotion of investment (through subsidies or other means) can improve welfare, but the introduction of retail fees on cash withdrawals at branches would be more effective, even if this does not encourage investment per se.

KW - technology investment

KW - usage

KW - efficiency

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Ferrari S, Verboven FL, Degryse HA. Investment and Usage of New Technologies: Evidence from a Shared ATM Network. Tilburg: Finance. 2008. (CentER Discussion Paper).