Regulating Communication Technology

The Case of Automated Teller Machine Networks

by William B. Trautman

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This research establishes a framework for analyzing the regulation of evolving communication technologies with a case study of automated teller machines (ATMs). The high fixed cost of communication technology may provide a basis for regulatory intervention, because it may enable large firms to gain a competitive advantage over small firms; it may also lead to efficiency. The regulatory issue is whether laws should be enacted that give competing firms access to existing technology, thus protecting the market share of small firms and enabling them to compete more equitably with large firms. Mandatory-access laws can impose a cost on society, however, by slowing the diffusion of technology and postponing the benefits associated with new communication services. This research provides empirical evidence that communication services are differentiated to a varying degree by location, suggesting that product differentiation may be relevant to regulation of mandatory access. The study presents a logistics model of ATM adoption by commercial banks. The model shows that the degree to which banks are differentiated on the dimension of location is an important determinant of ATM adoption, and that characterizations of competition that do not incorporate a measure of differentiation are not as good at predicting ATM adoption.

This report is part of the RAND Corporation note series. The note was a product of the RAND Corporation from 1979 to 1993 that reported other outputs of sponsored research for general distribution.

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