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Quantifying equilibrium network externalities in the ACH banking industry

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  • Daniel A. Ackerberg
  • Gautam Gowrisankaran

Abstract

We seek to determine the causes and magnitudes of network externalities for the automated clearinghouse (ACH) electronic payments system. We construct an equilibrium model of customer and bank adoption of ACH. We structurally estimate the parameters of the model using an indirect inference procedure and panel data. The parameters are identified from exogenous variation in the adoption decisions of banks based outside the network and other factors. We find that most of the impediment to ACH adoption is from large customer fixed costs of adoption. Policies to provide moderate subsidies to customers and larger subsidies to banks for ACH adoption could increase welfare significantly.
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Suggested Citation

  • 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, September.
    • Handle: RePEc:bla:randje:v:37:y:2006:i:3:p:738-761
    DOI: j.1756-2171.2006.tb00040.x
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    More about this item

    JEL classification:

    • L0 - Industrial Organization - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L88 - Industrial Organization - - Industry Studies: Services - - - Government Policy

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