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Innovation, Deregulation, and the Life Cycle of a Financial Service Industry

Listed author(s):
  • Fumiko Hayashi

    (Federal Reserve Bank of Kansas City)

  • Bin Grace Li

    (International Monetary Fund)

  • Zhu Wang

    (Federal Reserve Bank of Richmond)

We construct a dynamic equilibrium model to study how a major product innovation (introducing the debit card function) interacted with banking deregulation and drove the shakeout of the U.S. ATM and debit card industry. The model matches the quantitative pattern of the industry well and allows us to conduct counterfactual analyses to evaluate the roles that innovation and deregulation each played in the industry evolution. The findings show that debit innovation was the main driving force for the declining number of ATM networks, but deregulation had an important impact on the industry's welfare gains. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2017.04.001
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Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 26 (2017)
Issue (Month): (October)
Pages: 180-203

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Handle: RePEc:red:issued:13-257
DOI: 10.1016/j.red.2017.04.001
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  1. Mussa, Michael L, 1977. "External and Internal Adjustment Costs and the Theory of Aggregate and Firm Investment," Economica, London School of Economics and Political Science, vol. 44(174), pages 163-178, May.
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  7. Luís Cabral, 2012. "Technology uncertainty, sunk costs, and industry shakeout," Industrial and Corporate Change, Oxford University Press, vol. 21(3), pages 539-552, June.
  8. Adam J. Fein, 1998. "Understanding evolutionary processes in non-manufacturing industries: Empirical insights from the shakeout in pharmaceutical wholesaling," Journal of Evolutionary Economics, Springer, vol. 8(3), pages 231-270.
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  11. Petya Koeva Brooks, 2000. "The Facts About Time; To-Build," IMF Working Papers 00/138, International Monetary Fund.
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