Two banks compete for the checking and savings deposit business of a small town. Each bank has its own ATM network that works only on its own bankcards, but bank 1 has three times as many ATM machines as bank 2. Depositors value a bank’s services as an increasing function of the number of machines on the network. Bank 2 approaches bank 1 and suggests that they merge their ATM networks so that depositors of either bank can use either bank’s machines.
a. Is this merger in the interest of deposit consumers in general?
b. Do you think that bank 1 will agree with bank 2’s proposal?
