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

NET Institute Working Paper No. 04-16

46 Pages Posted: 15 Nov 2004

See all articles by Gautam Gowrisankaran

Gautam Gowrisankaran

Columbia University; HEC Montreal; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

John Krainer

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

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 10 percent and lowers producer profits by about 10 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.

Suggested Citation

Gowrisankaran, Gautam and Krainer, John, The Welfare Consequences of ATM Surcharges: Evidence from a Structural Entry Model (October 2004). NET Institute Working Paper No. 04-16, Available at SSRN: https://ssrn.com/abstract=618832 or http://dx.doi.org/10.2139/ssrn.618832

Gautam Gowrisankaran (Contact Author)

Columbia University ( email )

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HEC Montreal ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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National Bureau of Economic Research (NBER) ( email )

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John Krainer

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
United States

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