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Network Externalities and Technology Adoption: Lessons from Electronic Payments

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  • Gautam Gowrisankaran
  • Joanna Stavins
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    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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    Bibliographic Info

    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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    Cited by:
    1. Milne , Alistair, 2005. "What's in it for us? Network effects and bank payment innovation," Research Discussion Papers 16/2005, Bank of Finland.
    2. Robert DeYoung & William C. Hunter & Gregory F. Udell, 2003. "The past, present, and probable future for community banks," Working Paper Series WP-03-14, Federal Reserve Bank of Chicago.
    3. Vega, Milton & Ayllon, Roy & Chavez, Gonzalo, 2010. "Innovación En Los Sistemas De Pagos: El Caso Del Mercado De Transferencias De Crédito En El Peru," Working Papers 2010-010, Banco Central de Reserva del Perú.
    4. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, EconWPA.
    5. repec:dgr:umamer:2004020 is not listed on IDEAS
    6. 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.
    7. Berger, Allen N. & Buch, Claudia M. & DeLong, Gayle & DeYoung, Robert, 2004. "Exporting financial institutions management via foreign direct investment mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 333-366, April.
    8. Kaie Kerem & Vello Vensel, 2005. "Theory and Empirical Evidence of Business Support Networks," Working Papers 129, Tallinn School of Economics and Business Administration, Tallinn University of Technology.

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