Adoption of Technologies With Network Effects: An Empirical Examination of the Adoption of Automated Teller Machines

Abstract

The literature on networks suggests that the value of a is positively affected by the number of geographically dispersed locations it serves (the network and the number of its users (the scale effect). We show that as a result a firm's expected time until adoption of technologies with effects declines in both users and locations. We provide empirical evidence on the adoption of automated teller machines by banks that is consistent with this prediction. Using standard duration models, we find that a bank's date of adoption is decreasing in the number of its branches (a proxy for the number of locations and hence for the effect) and the value of its deposits (a proxy for number of users and hence for production scale economies). The effect is the larger of the two effects.