Using data for Mississippi, this paper revisits Burkey and Simkins' ( 2004) work on factors determining the number of payday lenders and banks. With data at two levels of geographic aggregation, the paper discovers whether empirical results are robust and allows for uncertainty in geographic definition of markets. Demand factors of population, income, and wealth have important impacts. Percentage of population with college education depresses numbers of payday lenders. Evidence indicates that banks are less likely to locate in African American areas, but the results show that race is neither a positive nor a statistically significant determinant of location for payday lenders.
This experiment helps students to understand the importance of network externalities in technology adoption and the evolution of industries. Students observe the roles of lock-in and critical mass in technology adoption, understand how pricing affects adoption, and see welfare implications of network externalities. Given examples of network effects in firm and government action (e.g., the advanced television systems committee, antitrust litigation for the credit/debit card industry, and private strategy in newer DVD technologies (HD DVD vs. Blue-Ray)), this experiment fits courses that wish to illustrate these ideas and provides a starting point for a more detailed study of network externalities
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