Opening the "black box" of network externalities in network adoption

Recent theoretical work suggests that network externalities are a determina nt of network adoption. However, few empirical studies have reported the im pact of network externalities on the adoption of networks. As a result, lit tle 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 emp irically the impact of network externalities and other influences that comb ine to determine network membership. The results support the network extern alities hypothesis. We find that banks in markets that can generate a large r 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 oppor tunity cost of adoption) decreases the probability of early adoption.