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

Gautam Gowrisankaran () and John Krainer
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Gautam Gowrisankaran: John M. Olin School of Business, Washington University in St. Louis

No 04-16, Working Papers from NET Institute

Abstract: We estimate a structural model of the market for automatic teller machines (ATMs) evaluate the implications of regulating ATM surcharges on ATM entry and consumer producer surplus. We estimate the model using data on firm and consumer locations, the parameters of the model by exploiting a source of local quasi–experimental variation, state of Iowa banned ATM surcharges during our sample period while the state of Minnesota not. We develop new econometric methods that allow us to estimate the parameters equilibrium models without computing equilibria. Monte Carlo evidence shows estimator performs well. We find that a ban on ATM surcharges reduces ATM entry percent, increases consumer welfare by about 10 percent and lowers producer profits percent. Total welfare remains about the same under regimes that permit or prohibit surcharges and is about 17 percent lower than the surplus maximizing level. This paper shed light on the theoretically ambiguous implications of free entry on consumer welfare for differentiated products industries in general and ATMs in particular.

Pages: 46 pages
Date: 2004-11, Revised 2004-11
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model (2006)
Working Paper: The welfare consequences of ATM surcharges: evidence from a structural entry model (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:net:wpaper:0416

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