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Product Innovation and Network Survival in the U.S. ATM and Debit Card Industry

  • Zhu Wang

    (Federal Reserve Bank of Kansas City)

  • Fumiko Hayashi

    (Federal Reserve Bank of Kansas City)

This paper provides a model to explain the shakeout of the U.S. ATM and debit card industry, which emphasizes the role that a major product innovation â introducing the debit function in the mid 1980s â played in driving the network consolidation. Consistent with the theory, our empirical findings show that large networks had a better chance of adopting the debit innovation and surviving the shakeout. However, in contrast to previous studies, we find little advantage of being an early entrant in this network industry. Rather, ownership and organizational structure had an important influence on network size and survival.

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File URL: https://economicdynamics.org/meetpapers/2011/paper_725.pdf
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Paper provided by Society for Economic Dynamics in its series 2011 Meeting Papers with number 725.

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Date of creation: 2011
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Handle: RePEc:red:sed011:725
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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  1. Knittel, Christopher R., 2004. "Incompatibility, Product Attributes and Consumer Welfare: Evidence from ATMs," Santa Cruz Department of Economics, Working Paper Series qt4z54r2s3, Department of Economics, UC Santa Cruz.
  2. Gautam Gowrisankaran & John Krainer, 2004. "The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model," Working Papers 04-16, NET Institute, revised Nov 2004.
  3. David B. Humphrey & Moshe Kim & Bent Vale, 1998. "Realizing the gains from electronic payments: costs, pricing, and payment choice," Proceedings 586, Federal Reserve Bank of Chicago.
  4. Jovanovic, B. & MacDonald, G.M., 1992. "The Life-Cycle of Competitive Industry," Papers 92-09, Rochester, Business - Financial Research and Policy Studies.
  5. Zhu Wang, 2007. "Technological Innovation and Market Turbulence: The Dot-com Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 78-105, January.
  6. Timothy H. Hannan, 2005. "ATM surcharge bans and bank market structure: the case of Iowa and its neighbors," Finance and Economics Discussion Series 2005-46, Board of Governors of the Federal Reserve System (U.S.).
  7. Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
  8. Benjamin E. Hermalin & Michael L. Katz, 2006. "Your network or mine? The economics of routing rules," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 692-719, 09.
  9. Fumiko Hayashi & Richard J. Sullivan & Stuart E. Weiner, 2006. "A guide to the ATM and debit card industry - 2006 update," Monograph, Federal Reserve Bank of Kansas City, number 2006agttaadci2.
  10. Mcandrews James J., 2003. "Automated Teller Machine Network Pricing - A Review of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-13, June.
  11. Zhu Wang, 2008. "Income Distribution, Market Size and the Evolution of Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 542-565, July.
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