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Network Externalities and Technology Adoption: Lessons from Electronic Payments

  • Gautam Gowrisankaran


    (Washington University, St. Louis and NBER)

  • Joanna Stavins


    (Federal Reserve Bank of Boston)

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    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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    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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