The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model

Gautam Gowrisankaran and John Krainer

No 12443, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate a structural model of the market for automatic teller machines (ATMs) in order to evaluate the implications of regulating ATM surcharges on ATM entry and consumer and producer surplus. We estimate the model using data on firm and consumer locations, and identify the parameters of the model by exploiting a source of local quasi-experimental variation, that the state of Iowa banned ATM surcharges during our sample period while the state of Minnesota did not. We develop new econometric methods that allow us to estimate the parameters of equilibrium models without computing equilibria. Monte Carlo evidence shows that the estimator performs well. We find that a ban on ATM surcharges reduces ATM entry by about 12 percent, increases consumer welfare by about 35 percent and lowers producer profits by about 20 percent. Total welfare remains about the same under regimes that permit or prohibit ATM surcharges and is about 17 percent lower than the surplus maximizing level. This paper can help shed light on the theoretically ambiguous implications of free entry on consumer and producer welfare for differentiated products industries in general and ATMs in particular.

JEL-codes: G21 L13 L5 (search for similar items in EconPapers)
Date: 2006-08
New Economics Papers: this item is included in nep-ban, nep-com and nep-fin
Note: IO PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Working Paper: The welfare consequences of ATM surcharges: evidence from a structural entry model (2004)
Working Paper: The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model (2004)
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