The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper examines innovation, deregulation, and firm 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
dataset 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