Working Paper: NBER ID: w12443
Authors: Gautam Gowrisankaran; John Krainer
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.
Keywords: ATM surcharges; consumer welfare; producer surplus; structural model
JEL Codes: G21; L13; L5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Ban on ATM surcharges (G28) | Reduction in ATM entry (E40) |
| Ban on ATM surcharges (G28) | Increase in consumer welfare (D69) |
| Ban on ATM surcharges (G28) | Decline in producer profits (L11) |
| Ban on ATM surcharges (G28) | Total welfare remains approximately the same (D69) |