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7/29/2020 ATM NETWORKS: COMPETITION OR COLLUSION? ATM NETWORKS: COMPETITION OR COLLUSION? 96-19 FOR MORE INFORMATION, CONTACT: Charles B. Henderson (314) 444-8311 FOR RELEASE MARCH 14, 1996 ST. LOUIS -- The automated teller machine (ATM) has become a common convenience for the average U.S. consumer. The ever-growing network of banks and other financial institutions that profit from them, however, has raised a thorny legal issue: At what point does cooperation between competing businesses become collusion? A group of lawyers, bankers and economists explores that question in the November/December 1995 Review, the Federal Reserve Bank of St. Louis' bimonthly journal of economic and business issues. The issue is based on a symposium sponsored by the St. Louis Fed last spring. "The challenge of applying the principles of antitrust to the payments activities of banks involves permitting enough cooperation among banks to facilitate an efficient payment system, while preserving incentives for competitive behavior," writes R. Alton Gilbert, the coordinator of the symposium, and a vice president and banking advisor for the Federal Reserve Bank of St. Louis. Today, increasingly large and successful ATM networks have become familiar around the country, with names like PLUS, CIRRUS, MAC, STAR and HONOR. At the same time, however, the number of ATM network alternatives available in any particular region has continued to decrease. The Board of Governors of the Federal Reserve System has noted that "the largest regional networks now account for 80 percent of all regional ATM network transactions in the United States." Do these ever-burgeoning ATM networks represent a threat to competition among banks? The following authors and articles analyze that issue: "Shared ATM Networks -- The Antitrust Dimension," by Donald I. Baker, an attorney and counselor with Baker & Miller PLLC in Washington, D.C., and a companion article, "Payment Systems and Antitrust: Can the Opportunities for Network Competition Be Recognized?" by David A. Balto, an attorney and advisor to the chairman of the Federal Trade Commission. Both Baker and Balto challenge the view that ATM networks are natural monopolies and argue for the benefits of preserving network competition. In addition, they cite several cases of vigorous competition between ATM networks that ceased when these networks merged. "Antitrust and Payment Technologies," by Dennis W. Carlton of the University of Chicago and Alan S. Frankel of Lexecon, Inc. They cite a court case involving Visa's denial of an application for membership by Dean Witter, which was owned by Discover Card. Discover Card sued Visa. A district court jury found in Dean Witter's favor, a decision later reversed by a circuit court. In their analysis of the case, Carlton and Frankel find evidence that the entry of aggressive competitors into the Visa credit card network made the entire credit card industry more competitive. Offering additional commentaries, and sometimes opposing views, are James J. McAndrews, a senior economist and research advisor at the Federal Reserve Bank of Philadelphia, and Nicholas Economides, associate professor of economics at the Stern School of Business. https://web.archive.org/web/19970220113628/http://www.stls.frb.org/releases/9619.htm 1/2 7/29/2020 ATM NETWORKS: COMPETITION OR COLLUSION? Gilbert says that the issues raised by the authors are relevant for other areas of the payment system as well, since new instruments such as stored value cards "will have implications for the competitive pricing of payment services." Subscriptions to Review are free and can be obtained by calling (314) 444-8809. The Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana and southern Illinois, western Kentucky and western Tennessee, and northern Mississippi. The Bank has branches in Louisville, Memphis and Little Rock. In addition to serving as a bank for depository institutions and the U.S. government, each Reserve Bank supervises state-chartered banks and bank holding companies, monitors economic conditions in the District and participates in formulating monetary policy. ### Please send comments or questions to henderson@stls.frb.org. This page has been accessed 47 times since August 12, 1996. https://web.archive.org/web/19970220113628/http://www.stls.frb.org/releases/9619.htm 2/2
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