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

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  • Fumiko Hayashi
  • Grace Li
  • Zhu Wang

Abstract

This paper examines innovation, deregulation, and fi rm dynamics over the life cycle of the U.S. ATM and debit card industry. In doing so, we construct a dynamic equilibrium model to study how a major product innovation (introducing the new debit card function) interacted with banking deregulation drove the industry shakeout. Calibrating the model to a novel data set on ATM network entry,exit, size, and product offerings shows that our theory fits the quantitative pattern of the industry well. The model also allows us to conduct counterfactual analyses to evaluate the respective roles that innovation and deregulation played in the industry evolution.

Suggested Citation

  • Fumiko Hayashi & Grace Li & Zhu Wang, 2015. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," Working Paper 15-8, Federal Reserve Bank of Richmond.
    • Handle: RePEc:fip:fedrwp:15-08
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    References listed on IDEAS

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    Cited by:

    1. Ester Faia & Gianmarco I. P. Ottaviano, 2017. "Global banking: risk taking and competition," CEP Discussion Papers dp1471, Centre for Economic Performance, LSE.
    2. Robert L. Hetzel, 2014. "Should Greece Remain in the Eurozone?," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 241-278.
    3. Hetzel, Robert, 2015. "A Comparison of Greece and Germany: Lessons for the Eurozone?," Studies in Applied Economics 33, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    4. Faia, Ester & Laffitte, Sébastien & Mayer, Maximilian & Ottaviano, Gianmarco, 2021. "Global banking: Endogenous competition and risk taking," European Economic Review, Elsevier, vol. 133(C).
    5. Boyan Jovanovic & Zhu Wang, 2020. "Idea Diffusion and Property Rights," Working Paper 20-11, Federal Reserve Bank of Richmond.
    6. Li, Bin Grace & McAndrews, James & Wang, Zhu, 2020. "Two-sided market, R&D, and payments system evolution," Journal of Monetary Economics, Elsevier, vol. 115(C), pages 180-199.
    7. Zhu, Chen & Xia, Yuqing & Liu, Qing & Hou, Bojun, 2023. "Deregulation and green innovation: Does cultural reform pilot project matter," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 84-105.
    8. Robert L. Hetzel, 2015. "A Comparison of Greece and Germany: Lessons for the Eurozone?," Working Paper 15-4, Federal Reserve Bank of Richmond.

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    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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