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Empirically Evaluating Two-Sided Integrated Network Effects: The Case of Electronic Payments

Many new technologies have two groups of users, whose ultimate benefit stems from interacting through a common network. For a technology to flourish, both kinds of users must adopt the technology. Lack of coordination can lead to an equilibrium where cost-savings are not realized, since no-one adopts. This can make cost-saving network technologies a policy issue. In the Automated Clearing House payments network there are two kinds of users: Originators of payments, and Receivers of payments. Since the presence of one group is complementary to the other, one group of users' decisions to join the network has a positive effect on the other group. This paper estimates these positive effects and finds them to be significant for both groups of users. The results suggest an inherent positive feedback mechanism in the adoption of ACH, meaning that policy intervention is not necessary.

Author(s)
Catherine Tucker
Publication Date
January, 2004