Abstract and Keywords
This article describes the economics of standardization, and the costs and benefits of alternative ways to achieve compatibility. Four paths to compatibility, namely standards wars, negotiations, dictators, and converters, are explained. These four paths to compatibility have different costs and benefits. Standard setting organizations are a heterogeneous set of institutions connected by their use of the consensus process. Government involvement may be appropriate when private control of an interface would result in utmost market power. Converters are attractive because they preserve flexibility for implementers. Compatibility standards can emerge through market competition, negotiated consensus, converters, or the actions of a dominant firm. Developing a better understanding of how a particular path is selected shows a crucial first step toward measuring the cost-benefit tradeoffs across paths, and adjudicating debates over the efficiency of the selection process.
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