Innovation, Deregulation, and the Life Cycle of a Financial Service Industry

41 Pages Posted: 13 Aug 2015

See all articles by Fumiko Hayashi

Fumiko Hayashi

Federal Reserve Bank of Kansas City

Bin (Grace) Li

International Monetary Fund

Zhu Wang

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: 2015-07-20

Abstract

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 data set 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.

JEL Classification: G2, L10, O30

Suggested Citation

Hayashi, Fumiko and Li, Bin (Grace) and Wang, Zhu, Innovation, Deregulation, and the Life Cycle of a Financial Service Industry (2015-07-20). FRB Richmond Working Paper No. 15-08, Available at SSRN: https://ssrn.com/abstract=2643144 or http://dx.doi.org/10.2139/ssrn.2643144

Fumiko Hayashi (Contact Author)

Federal Reserve Bank of Kansas City ( email )

1 Memorial Dr.
Kansas City, MO 64198
United States

Bin (Grace) Li

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States

HOME PAGE: http://binli.economics.googlepages.com/

Zhu Wang

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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