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Network externalities and technology adoption: lessons from electronic payments

  • Gautam Gowrisankaran
  • Joanna Stavins
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    We seek to determine the presence and causes of network externalities for the automated clearinghouse (ACH) electronic payments system, using a monthly panel data set on individual bank adoption of ACH. We construct a model of ACH usage that shows how to separately identify network externalities from technological advancement and peer-group effects. We find significant evidence of network effects and find evidence that these network effects are not internalized. Moreover, a large part of these network effects is due to informational problems. Sunk costs of adoption appear to be low.

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    Paper provided by Federal Reserve Bank of Boston in its series Working Papers with number 99-5.

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    Date of creation: 1999
    Date of revision:
    Handle: RePEc:fip:fedbwp:99-5
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    8. Austan Goolsbee & Peter J. Klenow, 1999. "Evidence on Learning and Network Externalities in the Diffusion of Home Computers," NBER Working Papers 7329, National Bureau of Economic Research, Inc.
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    10. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-41, August.
    11. Marc Rysman, 2004. "Competition Between Networks: A Study of the Market for Yellow Pages," Review of Economic Studies, Oxford University Press, vol. 71(2), pages 483-512.
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