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In this paper we examine the importance of local spillovers such as network externalities and learning from others in the diffusion of home computers using data on 110,000 U.S. households in 1997. Controlling for many individual characteristics, we find that people are more likely to buy their first home computer in areas where a high fraction of households already own computers or when a large share of their friends and family own computers. Further results suggest that these patterns are unlikely to be explained by city-specific unobserved traits. Looked at in more detail, the spillovers appear to come from experienced and intensive computer users. They are not associated with the use of any particular type of software but do seem to be highly tied to the use of e-mail and the Internet, consistent with computers being part of a local information and communications network.

Evidence on Learning and Network Externalities in the Diffusion of Home Computers