Network Externalities and Technology Adoption: Lessons from Electronic Payments

42 Pages Posted: 17 May 2002 Last revised: 10 Dec 2022

See all articles by Gautam Gowrisankaran

Gautam Gowrisankaran

Columbia University; HEC Montreal; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Joanna Stavins

Federal Reserve Bank of Boston

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002

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.

Suggested Citation

Gowrisankaran, Gautam and Stavins, Joanna, Network Externalities and Technology Adoption: Lessons from Electronic Payments (May 2002). NBER Working Paper No. w8943, Available at SSRN: https://ssrn.com/abstract=312656

Gautam Gowrisankaran (Contact Author)

Columbia University ( email )

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Joanna Stavins

Federal Reserve Bank of Boston ( email )

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