The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model
AbstractWe estimate a structural model of the market for automatic teller machines (ATMs) evaluate the implications of regulating ATM surcharges on ATM entry and consumer producer surplus. We estimate the model using data on firm and consumer locations, the parameters of the model by exploiting a source of local quasi–experimental variation, state of Iowa banned ATM surcharges during our sample period while the state of Minnesota not. We develop new econometric methods that allow us to estimate the parameters equilibrium models without computing equilibria. Monte Carlo evidence shows estimator performs well. We find that a ban on ATM surcharges reduces ATM entry percent, increases consumer welfare by about 10 percent and lowers producer profits percent. Total welfare remains about the same under regimes that permit or prohibit surcharges and is about 17 percent lower than the surplus maximizing level. This paper shed light on the theoretically ambiguous implications of free entry on consumer welfare for differentiated products industries in general and ATMs in particular.
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Bibliographic InfoPaper provided by NET Institute in its series Working Papers with number 04-16.
Length: 46 pages
Date of creation: Nov 2004
Date of revision: Nov 2004
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Other versions of this item:
- Gautam Gowrisankaran & John Krainer, 2004. "The welfare consequences of ATM surcharges: evidence from a structural entry model," Working Paper Series 2005-01, Federal Reserve Bank of San Francisco.
- Gautam Gowrisankaran & John Krainer, 2006. "The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model," NBER Working Papers 12443, National Bureau of Economic Research, Inc.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L5 - Industrial Organization - - Regulation and Industrial Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
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