IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/2015-192.html
   My bibliography  Save this paper

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

Author

Listed:
  • Fumiko Hayashi
  • Ms. Grace B Li
  • Zhu Wang

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 dataset 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.

Suggested Citation

  • Fumiko Hayashi & Ms. Grace B Li & Zhu Wang, 2015. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," IMF Working Papers 2015/192, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2015/192
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=43205
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Darren Filson, 2001. "The Nature and Effects of Technological Change over the Industry Life Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 460-494, July.
    2. Matthew Mitchell, 2002. "Technological Change and the Scale of Production," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(2), pages 477-488, April.
    3. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "The Life Cycle of a Competitive Industry," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 322-347, April.
    4. Steven Klepper & Kenneth L. Simons, 2000. "The Making of an Oligopoly: Firm Survival and Technological Change in the Evolution of the U.S. Tire Industry," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 728-760, August.
    5. Mcandrews James J., 2003. "Automated Teller Machine Network Pricing - A Review of the Literature," Review of Network Economics, De Gruyter, vol. 2(2), pages 1-13, June.
    6. Luís Cabral, 2012. "Technology uncertainty, sunk costs, and industry shakeout," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 21(3), pages 539-552, June.
    7. Adam J. Fein, 1998. "Understanding evolutionary processes in non-manufacturing industries: Empirical insights from the shakeout in pharmaceutical wholesaling," Journal of Evolutionary Economics, Springer, vol. 8(3), pages 231-270.
    8. Zhu Wang, 2008. "Income Distribution, Market Size and the Evolution of Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(3), pages 542-565, July.
    9. repec:bla:econom:v:44:y:1977:i:174:p:163-78 is not listed on IDEAS
    10. Fumiko Hayashi & Richard J. Sullivan & Stuart E. Weiner, 2006. "A guide to the ATM and debit card industry - 2006 update," Monograph, Federal Reserve Bank of Kansas City, number 2006agttaadci2, March.
    11. Ms. Petya Koeva Brooks, 2000. "The Facts About Time: To-Build," IMF Working Papers 2000/138, International Monetary Fund.
    12. Agarwal, Rajshree & Gort, Michael, 1996. "The Evolution of Markets and Entry, Exit and Survival of Firms," The Review of Economics and Statistics, MIT Press, vol. 78(3), pages 489-498, August.
    13. Filson, Darren, 2002. "Product and process innovations in the life cycle of an industry," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 97-112, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ester Faia & Gianmarco I. P. Ottaviano, 2017. "Global banking: risk taking and competition," CEP Discussion Papers dp1471, Centre for Economic Performance, LSE.
    2. Robert L. Hetzel, 2014. "Should Greece Remain in the Eurozone?," Economic Quarterly, Federal Reserve Bank of Richmond, issue 3Q, pages 241-278.
    3. Hetzel, Robert, 2015. "A Comparison of Greece and Germany: Lessons for the Eurozone?," Studies in Applied Economics 33, The Johns Hopkins Institute for Applied Economics, Global Health, and the Study of Business Enterprise.
    4. Faia, Ester & Laffitte, Sébastien & Mayer, Maximilian & Ottaviano, Gianmarco, 2021. "Global banking: Endogenous competition and risk taking," European Economic Review, Elsevier, vol. 133(C).
    5. Robert L. Hetzel, 2015. "A Comparison of Greece and Germany: Lessons for the Eurozone?," Working Paper 15-4, Federal Reserve Bank of Richmond.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fumiko Hayashi & Bin Grace Li & Zhu Wang, 2017. "Innovation, Deregulation, and the Life Cycle of a Financial Service Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 180-203, October.
    2. Fumiko Hayashi & Zhu Wang, 2008. "Product innovation and network survival in the U.S. ATM and debit card network industry," Research Working Paper RWP 08-14, Federal Reserve Bank of Kansas City.
    3. Zhu Wang & Fumiko Hayashi, 2011. "Product Innovation and Network Survival in the U.S. ATM and Debit Card Industry," 2011 Meeting Papers 725, Society for Economic Dynamics.
    4. Bos, Jaap W.B. & Economidou, Claire & Sanders, Mark W.J.L., 2013. "Innovation over the industry life-cycle: Evidence from EU manufacturing," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 78-91.
    5. Rajshree Agarwal & Barry L. Bayus, 2002. "The Market Evolution and Sales Takeoff of Product Innovations," Management Science, INFORMS, vol. 48(8), pages 1024-1041, August.
    6. Filson, Darren, 2002. "Product and process innovations in the life cycle of an industry," Journal of Economic Behavior & Organization, Elsevier, vol. 49(1), pages 97-112, September.
    7. Jian Tong, 2009. "Explaining The Shakeout Process: A ‘Successive Submarkets’ Model," Economic Journal, Royal Economic Society, vol. 119(537), pages 950-975, April.
    8. Filson, Darren & Gretz, Richard T., 2004. "Strategic innovation and technology adoption in an evolving industry," Journal of Monetary Economics, Elsevier, vol. 51(1), pages 89-121, January.
    9. Götz, Georg & Ederington, Josh, 2017. "Leapfrogging: Time of Entry and Firm Productivity," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168126, Verein für Socialpolitik / German Economic Association.
    10. Kreutter, Peter & Stadtmann, Georg, 2009. "The Captives' End: Lebenszyklusmuster in der Entwicklung der deutschen IT-Outsourcing-Industrie," Research Notes 30, Deutsche Bank Research.
    11. Agarwal, Rajshree & Bayus, Barry L., 2002. "The Market Evolution and Sales Take-Off of Product Innovations," Working Papers 02-0104, University of Illinois at Urbana-Champaign, College of Business.
    12. Sonobe, Tetsushi & Hu, Dinghuan & Otsuka, Keijiro, 2004. "From inferior to superior products: an inquiry into the Wenzhou model of industrial development in China," Journal of Comparative Economics, Elsevier, vol. 32(3), pages 542-563, September.
    13. Cucculelli, Marco & Peruzzi, Valentina, 2020. "Innovation over the industry life-cycle. Does ownership matter?," Research Policy, Elsevier, vol. 49(1).
    14. Boyan Jovanovic & Chung-Yi Tse, 2006. "Creative Destruction in Industries," NBER Working Papers 12520, National Bureau of Economic Research, Inc.
    15. Boyan Jovanovic & Chung-Yi Tse, 2010. "Entry and Exit Echoes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(3), pages 514-536, July.
    16. Boyan Jovanovic, 1998. "Michael Gort's Contribution to Economics," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(2), pages 327-337, April.
    17. Luis Cabral & Zhu Wang & Daniel Yi Xu, 2018. "Competitor, Complementors, Parents and Places: Explaining Regional Agglomeration in the U.S. Auto Industry," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 30, pages 1-29, October.
    18. Najda-Janoszka, Marta, 2017. "Industry Transition - Challenges for Value Capture," MPRA Paper 81919, University Library of Munich, Germany.
    19. Richard J. Sullivan & Zhu Wang, 2005. "Internet banking: an exploration in technology diffusion and impact," Payments System Research Working Paper PSR WP 05-05, Federal Reserve Bank of Kansas City.
    20. Silviano Esteve-Pérez & Fabio Pieri & Diego Rodriguez, 2018. "Age and productivity as determinants of firm survival over the industry life cycle," Industry and Innovation, Taylor & Francis Journals, vol. 25(2), pages 167-198, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:2015/192. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Akshay Modi (email available below). General contact details of provider: https://edirc.repec.org/data/imfffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.