1. Bank 1 and Bank 2 are considering entering a compatibility agreement that would permit the users of each bank’s ATMs access to the other bank’s ATMs. Bank 1 has a network of branches and automated teller machines (ATMs) extending from Connecticut to Florida. Bank 1’s 12 million customers currently have access only to the 10,000 ATMs solely owned by the company on the East Coast. While Bank 2’s core account holders are located on the West Coast and southwestern portion of the United States, the company is expanding to the East Coast. Bank 2 has 15 million customers who can use any of its 14,000 ATMs. Using the idea of network externalities, describe how such an agreement between Bank 1 and Bank 2 would benefit consumers.
2. You are the manager of an international firm headquartered in Antarctica. You are contemplating a business tactic that will permit your firm to raise prices and increase profits in the long run by eliminating one of your competitors. Do you think it would make economic sense to expend resources on legal counsel before implementing your strategy? Explain.