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Entry and pricing in a differentiated products industry: evidence from the ATM market
Author(s) -
Gowrisankaran Gautam,
Krainer John
Publication year - 2011
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/j.1756-2171.2010.00123.x
Subject(s) - economic surplus , welfare , economics , microeconomics , product differentiation , industrial organization , regression discontinuity design , atm card , discontinuity (linguistics) , econometrics , business , mathematics , statistics , mathematical analysis , finance , market economy , payment
We estimate a structural equilibrium model of the automatic teller machine market (ATM) to evaluate the implications of regulating ATM surcharges. We use data on bank characteristics, potential and actual ATM locations, and consumer locations; identify the model parameters with a regression discontinuity design; and develop methods to estimate the model without computing equilibria. A surcharge ban reduces ATM entry 12% and consumer welfare 24% but increases firm profits 27%. Total welfare under either regime is 4% lower than the surplus maximizing level. The article can help shed light on the implications of unregulated entry for differentiated products industries.