Competition Before Sunset: The Case of the Finnish ATM Market

Abstract

AbstractWe study service fee and network size competition in an ATM market between an incumbent and an independent deployer, and its optimal regulation. We also analyze an actual regulation of such a market by competition authorities in Finland. Compared with the first-best regulation, we find unregulated foreign and interchange fees too high and an unregulated size of the incumbent’s ATM network too small. However, if network sizes cannot be directly regulated, then competitive fees may also be too low from the welfare point of view. The Finnish regulation caps the incumbent’s foreign fee which, according to our model, results in an increased interchange fee and a larger ATM network. In contrast with the actual regulation, it would also be essential to regulate the interchange fee.