Friday, December 21, 2012
Posted by D. Daniel Sokol
Maria Kopsakangas-Savolainen, Finnish Environment Institute, University of Oulu - Department of Economics and Tuomas Takalo, Bank of Finland, Monetary Policy and Research Department have written on Competition before Sunset: The Case of the Finnish ATM Market.
ABSTRACT: We build a simple model to study service fee competition between an incumbent and an independent ATM deployer, and its optimal regulation. We use the model to analyze an actual regulation of such a market by competition authorities in Finland. We find that socially optimal first-best fees would imply negative profits for the independent deployer, calling for a Ramsey regulation. While the Finnish regulation pushes the foreign fee downwards towards its socially optimal level, the regulated fees are likely to remain too high from the welfare point of view. In contrast with the actual regulation, it would be essential to regulate the independent deployer's interchange fee, as the incumbent deployer internalizes the effect of its foreign fee on consumer usage of the rival's network and has little incentive for foreclosure.