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Network Externalities and Technology Adoption: Lessons from Electronic Payments

Gautam Gowrisankaran and Joanna Stavins
The RAND Journal of Economics
Vol. 35, No. 2 (Summer, 2004), pp. 260-276
Published by: Wiley on behalf of RAND Corporation
Stable URL: http://www.jstor.org/stable/1593691
Page Count: 17
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Network Externalities and Technology Adoption: Lessons from Electronic Payments
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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.

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