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10 - Standards battles and public policy

Published online by Cambridge University Press:  22 September 2009

By
Luís M. B. Cabral  and
Tobias Kretschmer
Edited by
Shane Greenstein  and
Victor Stango
Luís M. B. Cabral
Affiliation:
Professor of Economics and Chair Department of Economics Leonard Stern School of Business New York University
Tobias Kretschmer
Affiliation:
Lecturer in Strategy and Economics Interdisciplinary Institute of Management (IIM) London School of Economics
Shane Greenstein
Affiliation:
Kellogg School of Management, Northwestern University
Victor Stango
Affiliation:
Tuck School of Business, Dartmouth College
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Summary

Abstract

We examine the effectiveness of public policy in a context of competing standards with network externalities. We show that, if the policymaker is very impatient, then it is optimal to support the leading standard; whereas, if the policymaker is very patient, then it is optimal to support the lagging standard. We also consider the timing for optimal intervention and provide sufficient conditions under which it is optimal to delay or not to delay intervention.

Keywords: standards, network externalities, public policy.

JEL Code Nos.: L13, L51, O33

Introduction

VHS vs. Betamax VCRs; Apple MacIntosh vs. PC DOS microcomputers; discrete vs. matrix quadraphonic systems. These are three of a long list of examples from recent history where two (or more) alternative versions of a new standard battled for market dominance. One aspect common to most of these standards is the importance of network effects: the fact that many users buy a DOS-based microcomputer increases the utility of buying a DOS-based microcomputer (among other reasons because the amount of software, technical support, etc., available for DOS users will be better and more widely available).

Given the importance of network industries, it is surprising that little attention has been paid to the role of public policy in standards battles. Consider the cases of high-definition television (HDTV) and mobile telecommunications.

Type
Chapter
Information
Standards and Public Policy , pp. 329 - 344
Publisher: Cambridge University Press
Print publication year: 2006

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References

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  • Standards battles and public policy
    • By Luís M. B. Cabral, Professor of Economics and Chair Department of Economics Leonard Stern School of Business New York University, Tobias Kretschmer, Lecturer in Strategy and Economics Interdisciplinary Institute of Management (IIM) London School of Economics
  • Edited by Shane Greenstein, Kellogg School of Management, Northwestern University, Victor Stango, Tuck School of Business, Dartmouth College
  • Book: Standards and Public Policy
  • Online publication: 22 September 2009
  • Chapter DOI: https://doi.org/10.1017/CBO9780511493249.011
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  • Standards battles and public policy
    • By Luís M. B. Cabral, Professor of Economics and Chair Department of Economics Leonard Stern School of Business New York University, Tobias Kretschmer, Lecturer in Strategy and Economics Interdisciplinary Institute of Management (IIM) London School of Economics
  • Edited by Shane Greenstein, Kellogg School of Management, Northwestern University, Victor Stango, Tuck School of Business, Dartmouth College
  • Book: Standards and Public Policy
  • Online publication: 22 September 2009
  • Chapter DOI: https://doi.org/10.1017/CBO9780511493249.011
Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Standards battles and public policy
    • By Luís M. B. Cabral, Professor of Economics and Chair Department of Economics Leonard Stern School of Business New York University, Tobias Kretschmer, Lecturer in Strategy and Economics Interdisciplinary Institute of Management (IIM) London School of Economics
  • Edited by Shane Greenstein, Kellogg School of Management, Northwestern University, Victor Stango, Tuck School of Business, Dartmouth College
  • Book: Standards and Public Policy
  • Online publication: 22 September 2009
  • Chapter DOI: https://doi.org/10.1017/CBO9780511493249.011
Available formats
×