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Network Externalities and Technology Adoption: Lessons from Electronic Payments

Author

Listed:
  • 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.

Suggested Citation

  • Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
  • Handle: RePEc:rje:randje:v:35:y:2004:2:p:260-276
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    References listed on IDEAS

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    JEL classification:

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

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