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Opening the “Black Box” of Network Externalities in Network Adoption

Author

Listed:
  • Robert J. Kauffman

    (Carlson School of Management,University of Minnesota, Minneapolis, Minnesota 55455)

  • James McAndrews

    (Department of Research, Federal Reserve Bank of New York, 33 Liberty Street, New York, New York 10045)

  • Yu-Ming Wang

    (College of Business Administration, California State University, Long Beach, California 90840)

Abstract

Recent theoretical work suggests that network externalities are a determinant of network adoption. However, few empirical studies have reported the impact of network externalities on the adoption of networks. As a result, little is known about the extent to which network externalities may influence network adoption and diffusion. Using electronic banking as a context and an econometric technique called hazard modeling , this research examines empirically the impact of network externalities and other influences that combine to determine network membership. The results support the network externalities hypothesis . We find that banks in markets that can generate a larger effective network size and a higher level of externalities tend to adopt early, while the size of a bank's own branch network (a proxy for the opportunity cost of adoption)decreases the probability of early adoption.

Suggested Citation

  • Robert J. Kauffman & James McAndrews & Yu-Ming Wang, 2000. "Opening the “Black Box” of Network Externalities in Network Adoption," Information Systems Research, INFORMS, vol. 11(1), pages 61-82, March.
    • Handle: RePEc:inm:orisre:v:11:y:2000:i:1:p:61-82
    DOI: 10.1287/isre.11.1.61.11783
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    References listed on IDEAS

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