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Network Externalities and Technology Adoption: Lessons from Electronic Payments

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  • Gautam Gowrisankaran

    ()
    (Washington University, St. Louis and NBER)

  • Joanna Stavins

    ()
    (Federal Reserve Bank of Boston)

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    Abstract

    We analyze the extent of network externalities for the automated clearinghouse (ACH) electronic payments system using a panel dataset on bank adoption and usage of ACH. We develop three methods. The first examines the clustering of ACH adoption. The second examines the impact of market concentration and the size of competitors on ACH adoption. The third examines the impact of ACH adoption by small branches of large banks on local competitors. These methods separately identify network externalities from technological advancement, peer-group effects, economies of scale, and market power. We find evidence that the network externalities are moderately large.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 35 (2004)
    Issue (Month): 2 (Summer)
    Pages: 260-276

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    Handle: RePEc:rje:randje:v:35:y:2004:2:p:260-276

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    Cited by:
    1. Gautam Gowrisankaran & Minsoo Park & Marc Rysman, 2010. "Estimating Network Effects in a Dynamic Environment," Working Papers 10-03, NET Institute, revised May 2010.
    2. Jeremy T. Fox & Natalia Lazzati, 2012. "Identification of Potential Games and Demand Models for Bundles," NBER Working Papers 18155, National Bureau of Economic Research, Inc.
    3. Catherine Tucker & Amalia Miller, 2009. "System Size, Lock-in and Network Effects for Patient Records," Working Papers 09-07, NET Institute, revised Sep 2009.
    4. Estelle Cantillon & Pai-Ling Yin & Sloan Mit, . "Competition between Exchanges - Lessons from the Battle of the Bund," ULB Institutional Repository 2013/151702, ULB -- Universite Libre de Bruxelles.
    5. W. Scott Frame & Lawrence J. White, 2014. "Technological Change, Financial Innovation, and Diffusion in Banking," Working Papers 14-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Daniel A. Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying equilibrium network externalities in the ACH banking industry," RAND Journal of Economics, RAND Corporation, vol. 37(3), pages 738-761, 09.
    7. Miller, Amalia R. & Tucker, Catherine, 2014. "Health information exchange, system size and information silos," Journal of Health Economics, Elsevier, vol. 33(C), pages 28-42.
    8. Jinhyung Lee & Jeffrey S. McCullough & Robert J. Town, 2012. "The Impact of Health Information Technology on Hospital Productivity," NBER Working Papers 18025, National Bureau of Economic Research, Inc.
    9. Estelle Cantillon & Pai-Ling Yin, 2008. "Asymmetric Network Effects," Working Papers 08-42, NET Institute.
    10. Nicholas Economides & V. Brian Viard, 2010. "The Effect of Content on Global Internet Adoption and the Global “Digital Divide”," Working Papers 10-24, NET Institute, revised Sep 2013.
    11. Peng Huang & Marco Ceccagnoli & Chris Forman & D.J. Wu, 2009. "Participation in a Platform Ecosystem: Appropriability, Competition, and Access to the Installed Base," Working Papers 09-14, NET Institute, revised Sep 2009.
    12. Catherine Tucker & Amalia Miller, 2007. "Privacy Protection and Technology Diffusion: The Case of Electronic Medical Records," Working Papers 07-16, NET Institute, revised Sep 2007.
    13. Scott Schuh & Joanna Stavins, 2008. "Summary of the workshop on Consumer Behavior and Payment Choice," Public Policy Discussion Paper 08-5, Federal Reserve Bank of Boston.
    14. Thomas J. Holmes, 2006. "Geographic spillover of unionism," Staff Report 368, Federal Reserve Bank of Minneapolis.
    15. Jin-Hyuk Kim & Jeffrey T. Prince & Calvin Qiu, 2013. "Indirect Network Effects and the Quality Dimension: A Look at the Gaming Industry," Working Papers 2013-10, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    16. Stephen Ryan & Catherine Tucker, 2006. "Heterogeneity and the Dynamics of Technology Adoption," Working Papers 06-26, NET Institute, revised Oct 2006.

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