Market Access and Information Technology Adoption: Historical Evidence from the Telephone in Bavaria

Information technology, like the telephone, influences market access; this paper answers the question about a reverse effect, does market access affect information technology, in particular its adoption?  Using the introduction of the telephone in Bavaria, I demonstrate with a rank, order and stock effects diffusion model how market access affects the diffusion of local telephone exchanges over towns as well as the rate of adoption of telelphone lines within towns.  The results of a duration analysis show that market access speeds up the diffusion, a spatial correlation specification demonstrates that this is not just a geographic effect.  The rate of adoption within towns is also affected by the adoption of lines in other towns, the results indicate that about 4% of all lines are due to the ability to call outside your local exchange network.  Market access is therefore shown to impact the adoption of technology.