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Network Externalities and Technology Adoption: Lessons from Electronic Payments

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Author Info
Gautam Gowrisankaran () (Washington University, St. Louis and NBER)
Joanna Stavins () (Federal Reserve Bank of Boston)
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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Publisher 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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  2. Thomas J. Holmes, 2006. "Geographic spillover of unionism," Staff Report 368, Federal Reserve Bank of Minneapolis. [Downloadable!]
  3. Mitsuru Sunada, 2008. "Network effects with quality change: an empirical analysis of the Japanese mobile telecommunications market, 1995-2001," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 657-674. [Downloadable!]
  4. Morten L. Bech & Bart Hobijn, 2006. "Technology diffusion within central banking: the case of real-time gross settlement," Staff Reports 260, Federal Reserve Bank of New York. [Downloadable!]
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  5. Thomas J. Holmes, 2006. "Geographic Spillover of Unionism," NBER Working Papers 12025, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Cantillon, Estelle & Yin, Pai-Ling, 2008. "Competition between Exchanges: Lessons from the Battle of the Bund," CEPR Discussion Papers 6923, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Daniel Birke & G. Swann, 2006. "Network effects and the choice of mobile phone operator," Journal of Evolutionary Economics, Springer, vol. 16(1), pages 65-84, April. [Downloadable!] (restricted)
  8. Daniel A. Ackerberg & Gautam Gowrisankaran, 2006. "Quantifying Equilibrium Network Externalities in the ACH Banking Industry," NBER Working Papers 12488, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Stephen Ryan & Catherine Tucker, 2006. "Heterogeneity and the Dynamics of Technology Adoption," Working Papers 06-26, NET Institute, revised Oct 2006. [Downloadable!]
  10. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," Working Paper 2009-10, Federal Reserve Bank of Atlanta. [Downloadable!]
  11. Moita, Rodrigo M. S., 2006. "Entry and Externality: Hydroelectric Generators in Brazil," Ibmec Working Papers wpe_59, Ibmec Working Paper, Ibmec São Paulo. [Downloadable!]
  12. 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. [Downloadable!]
  13. Nicoletta Corrocher & Roberto Fontana, 2008. "Expectations, network effects and timing of technology adoption: some empirical evidence from a sample of SMEs in Italy," Small Business Economics, Springer, vol. 31(4), pages 425-441, December. [Downloadable!] (restricted)
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