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Innovation, Deregulation, and the Life Cycle of a Financial Service Industry
Author:
Fumiko Hayashinull

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,
Ms. Grace B Li
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, and
Zhu Wangnull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 192
Language:
English
Publication Date:
18 Aug 2015
DOI:
https://doi.org/10.5089/9781513537733.001
ISBN:
9781513537733
ISSN:
1018-5941
Pages:
42
Keywords:
WP; automated teller machine; Innovation; Deregulation; Industry Dynamics; Shakeout; ATM-debit network; debit innovation; ATM network; ATM-debit card; ATM-debit service; Technological innovation; Services sector; Public expenditure review
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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 industry evolution.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2015: Issue 192