Working Paper: NBER ID: w8943
Authors: Gautam Gowrisankaran; Joanna Stavins
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.
Keywords: network externalities; technology adoption; electronic payments; automated clearinghouse
JEL Codes: C33; C35; G21; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market concentration (L11) | ACH adoption (B53) |
| adoption decisions of small branches of large banks (G21) | impact on local competitors (F69) |
| increase in ACH adoption by nearby banks (G21) | higher likelihood of adoption by other banks in the network (G21) |