The Economics of Compatibility Standards: an Introduction to Recent Research1 . .;
Econ. Innov. New Techn., !990, Vol. I, pp. 3-41 © 1990 Harwood Academic Publishers GmbH Reprints available directly from the publisher Printed in Great Britain Photocopying permitted by license only THE ECONOMICS OF COMPATIBILITY STANDARDS: AN INTRODUCTION TO RECENT RESEARCH1 PAUL A. DAVID Stanford University and SHANE GREENSTEIN University of Illinois, Champaign-Urbana This paper surveys the contributions that economists have made to understanding standards-setting processes and their consequences for ijldustry structure and economic welfare. Standardization processes of four kinds are examined, namely: (1) market competition involving products embodying unsponsored standards, (2) market competition amo'llg sponsored (proprietary) standards, (3) agreements within volun tary standards-writing organizations, a11d (4) direct governmental promulgation. The major trajectories along which research has been moving are described and related to both the positive and the normative issues concerning compatibility standards that remain to be studied. ~- . .; 1. INTRODUCTION Recent and ongoing advances in microelectronics and communications technologies have made the formerly esoteric subject of technical compatibility standards a fami liar matter in our everyday experience, as well as a perennial topic for discussion in the industry press (see, e.g., Arnold (1985), Bartik (1985), Cropper (1980), Kass (1981), SJMN (1986), Teresko (1986), Witten (1983)), Today, many people- includ ing academic economists - would readily acknowledge that considerable importance attaches to the existence and nature of technical standards for the encoding, storage, processing and transmission of information. Questions concerning compatibility and voluntary standards-setting have emerged as having central strategic significance in the development and marketing of computer operating systems and software (e.g. DOS and UNIX), value added data networks (e.g., TELENET and TYMNET), local 2 ...
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