NETWORK EXTERNALITIES AND SHARED ELECTRONIC BANKING NETWORK ADOPTION

Abstract

A unique data set is used to examine the determinants of membership in the Yankee 24 shared Automated Teller Machine (ATM) network. Recent work suggests that the presence of demand side network externalities influences the decision to join a network. A model is constructed in which characteristics of the bank and the market affect the value of the network externality. A hazard function is estimated to gauge the strength of these various influences in determining network membership. The results accord with the theoretical model and show that the size of the existing network and the number of expected locations in the network, proxied by the number of branches in a bank's market, are both strong influences on network adoption that are external to the individual bank.