Question

Discuss the different ways that compatibility standards may emerge in markets. What implications, if any, do different paths to compatibility have for competition, innovation and economic efficiency?

Answer 1

There are four standardization processes

1. Market competition involving products embodying unsponsered standards

2. Market competition Among sponsored standard

3. Agreements within voluntary standards

4 direct government organization.

unsponsored standards

there is now a substantial literatire examing economic processes Affecting the formation of " unsponsored" standards. Typically these are situations where no agents have proprieatary interests in any of the relevant standars and No firm or user is large enough to take Account of the way their pricing and technology choice decisions May influence the Actions of the other vendors or users often these models serve as benchmarks that highlight in the implication ofunderlying technical features of a product market - such as complemantaries in demand, or network externalities in consumption. or of an induatries production process- such as technical intetrelatedness or learning pillers

SPONSORD STANDARDIZATION PROCESSES

sponsored standardization processes differ sharply from unsponsored processes. in the Former propretary control can create incentives for firms to manipulate technical standards so as to make their goods compatible with complemantory component or substitute system. as well as to change in strategy price setting as a consequence the sponsoring agents in the process take Actions that anticipate the reaction of rivals because they know their Actions will affect the returns to Adoption of the altetnative standards.