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Network Externalities and Technology Adoption: Lessons from Electronic Payments

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Author Info
Gautam Gowrisankaran
Joanna Stavins
Abstract

We seek to analyze the extent and sources of network externalities for the automated clearinghouse (ACH) electronic payments system using a quarterly panel data set on individual bank adoption and usage of ACH. We provide three methods to identify network externalities using this panel data. The first method identifies network externalities from the clustering of ACH adoption. The second method identifies them by examining whether banks in areas with higher market concentration or larger competitors are more likely to adopt ACH. The third method identifies them by examining whether the ACH adoption by small branches of large banks affects the adoption by local competitors. Using fixed effects and panel data 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8943.

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Date of creation: May 2002
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Handle: RePEc:nbr:nberwo:8943

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C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data
C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models

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  1. Robert DeYoung & William Hunter & Gregory Udell, 2004. "The Past, Present, and Probable Future for Community Banks," Journal of Financial Services Research, Springer, vol. 25(2), pages 85-133, April. [Downloadable!] (restricted)
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  2. Marc Rysman, 2003. "Differentiation Across Standards and Adoption Failure in 56K Modems," Working Papers 03-12, NET Institute, revised Dec 2003. [Downloadable!]
  3. Kaie Kerem & Vello Vensel, 2005. "Theory and Empirical Evidence of Business Support Networks," Working Papers 129, School of Economics and Business Administration, Tallinn University of Technology. [Downloadable!]
  4. Leibbrandt ,Gottfried, 2004. "Harmonizing Europe’s payment systems: an uphill battle?," Research Memoranda 020, Maastricht : MERIT, Maastricht Economic Research Institute on Innovation and Technology. [Downloadable!]
  5. Angelique Augereau & Shane Greenstein & Marc Rysman, 2004. "Coordination vs. Differentiation in a Standards War: 56K Modems," NBER Working Papers 10334, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA. [Downloadable!]
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