Abstract

The authors take a preliminary look at the interaction between patenting and standardization committee participation in the US modem industry. Both involve a much wider set of firms than the downstream modem manufacturers themselves. Not surprisingly, the two activities are highly correlated across firms. Using five-year periods, Granger causality tests show that while patenting is predicted by participation in earlier standardization meetings, meetings participation is not predicted by earlier patenting. The authors interpret these results as reflecting the timing of standard setting relative to innovation.

Introduction

The past two decades have witnessed a proliferation of high-tech consumer electronic products which exhibit network effects. Successful diffusion of these products is often contingent on a single product winning a battle of market standards or firms achieving compatibility among competing standards. The benefit to consumers from purchasing a network good depends on the number of other consumers who eventually purchase the same network good, or a compatible one. This situation has two main implications for competition in network markets, with competing standards:

1. Consumers' expectations regarding the future size of a network are critical in the adoption decision. On the one hand, the expectation that one technology will become a standard may be self-fulfilling. On the other hand, fragmented expectations may lead to a battle with no winner. Postrel (1990) partly attributes the failure of quadraphonic sound in the 1970s to competing standards.

2. […]