This is a graduate seminar on the economic, legal, and strategic aspects of technical compatibility standards. It is open to all graduate students who feel prepared for it.
The readings may seem frightening in their volume and diversity. Be assured, however, that they are fairly redundant. The phenomena of standards are so strange that most authors feel the need to explain the basics to each audience. We will be able to gloss over much of that background material.
Week 1 / Introduction
This week we'll go through the syllabus and introduce everyone.Week 2 / Background
Reading the literature on standards is like diving to the bottom of the ocean: it's a different world, so complicated that the authors have no choice but to simplify away a great deal. Accordingly, we will prepare ourselves by reading about various big pictures into which the standards literature ought to fit.William J. Drake, The Internet religious war, Telecommunications Policy 17(9), 1993, pages 643-649.
Many people are familiar with standards issues mostly through the publicity surrounding the Internet. Viewed in historical context of other technical standards, the Internet is quite atypical, and an important question is whether the Internet standardization process is the wave of the future, or whether it is an anomaly. Drake's article, really a review of Carl Malamud's "Exploring the Internet", raises the issue in vivid and colorful terms.Nathan Rosenberg, Technological interdependence in the American economy, in Inside the Black Box: Technology and Economics, Cambridge: Cambridge University Press, 1982.
The various sectors of the economy do not evolve through independent paths of technological innovation. Quite the contrary, innovation in one area of the economy frequently spills over into other areas. Rosenberg provides numerous examples. This will be a useful perspective to keep in mind when we consider case studies of standardization that are confined to particular industries.Martin C. Libicki, Standards: The rough road to the common byte, in Brian Kahin and Janet Abbate, eds, Standards Policy for Information Infrastructure, Cambridge: MIT Press, 1995.
Libicki's chapter provides a relatively concrete survey of the major information technology standards, considered as an interconnected family, and the overall process through which they evolved. By keeping the particulars of this story in mind, we will be able to test many of the theories of standardization that will appear in later weeks' readings.Gregory Tassey, The roles of standards as technology infrastructure, in Richard Hawkins, Robin Mansell, and Jim Skea, eds, Standards, Innovation and Competitiveness: The Politics and Economics of Standards in Natural and Technical Environments, Edward Elgar, 1995.
There are a tremendous number of standards. Taken as a whole, Tassey argues, these standards are usefully viewed as a component of a society's infastructure.Giovanni Dosi, Technological paradigms and technological trajectories: A suggested interpretation of the determinants and directions of technical change, Research Policy 11(3), 1982, pages 147-162.
Technologies do not arise at random, but through a theme-and-variations pattern that is not driven solely by the demands of a market considered in abstraction. Dosi provides some ways of thinking about the coherent "paradigms" of technology and their subsequent evolution. This will be a useful perspective when we consider models of standardization that reduce technologies to binary choices between one discrete standard and another.Ole Hanseth, Eric Monteiro, and Morten Hatling, Developing information infrastructure: The tension between standardization and flexibility, Science, Technology, and Human Values 21(4), 1996, pages 407-426.
Some standards are more successful than others. Success can be measured in terms of a standard's widespread acceptance or rejection by markets and governments. But it can also be measured in other terms, for example its ability to evolve and to interact with later, unpredicted innovations. Hanseth et al describe how this need for flexibility has been addressed in the Internet.Batya Friedman and Helen Nissenbaum, Bias in computer systems, ACM Transactions on Information Systems 14(3), 1996, pages 330-347.
It matters whether a standard arises, but it also matters which standard arises, because standards, and thus artifacts themselves, can embody socially meaningful biases. Friedman and Nissenbaum provide a taxonomy of the ways in which computer systems can be biased. This perspective will be nearly invisible through most of the literature that we read this term, so we should try to keep Friedman and Nissenbaum's analysis in mind throughout.Week 3 / Networks
The most important single word this term is "network". Unfortunately, this word carries about five different meanings: (1) a set of machines connected to one another by standard communications protocols; (2) the presumptively homogenous group of individuals who have all bought a given product, and who benefit from one another's use of the product; (3) the presumptively heterogeneous set of products and services that must all be available and working if any one of them is to be enjoyed successfully; (4) a collection of business firms joined together by a shifting set of alliances; and (5) the network of individual human relationships through which familiarity with a new technology diffuses. This week we will read about the first four of these, all of which will figure in later discussions. For business thinking about the fifth and its implications for strategy, see Moore's "Crossing the Chasm".Michel Callon, Techno-economic networks and irreversibility, in John Law, ed, A Sociology of Monsters: Essays on Power, Technology and Domination, London: Routledge, 1991.
According to the actor network school of technology studies, technological innovation is essentially a matter of assembling heterogeneous networks of interdependent artifacts, people, organizations, laws, and so forth. Callon provides a highly abstract vocabulary for talking about these networks and their evolution.Gernot Grabher, Rediscovering the social in the economics of interfirm relations, in Gernot Grabher, The Embedded Firm: On the Socioeconomics of Industrial Networks, London: Routledge, 1993.
As industrial products and production processes become more complicated, it becomes impractical for any one firm to command the full range of necessary skills. As a result, many analysts argue that the global economy evolving into a complex and ceaselessly shifting network of alliances among firms. Grabher's chapter is the introduction to an edited volume of articles on this phenomenon, and it surveys various analyses of it.Harry M. Trebing, The networks as infrastructure: The reestablishment of market power, Journal of Economic Issues 28(2), 1994, pages 379-389.
An unreconstructed opponent of laissez faire telecommunications policy, Trebing provides a rapid survey of the conventional mechanisms of market failure in telecommunications, arguing that all of those mechanisms are alive and well.Jeffrey Rohlfs, A theory of interdependent demand for a communications service, Bell Journal of Economics 5(1), 1974, pages 16-37.
This article is often cited as the origin of network economics. It offers a formal analysis of the observation that the value of a telecommunications service to a subscriber depends in large part on the number of other subscribers. As a result, such "network" markets tend to exhibit critical mass phenomena and other such effects, which have come to become called network effects.Michael L. Katz and Carl Shapiro, Systems competition and network effects, Journal of Economic Perspectives 8(2), 1994, pages 93-115.
This is an informal introduction to the now-conventional analysis of network effects that informs much of the literature that we will read this term. The basic argument is that network effects often produce market failures.S. J. Liebowitz and Stephen E. Margolis, Network externality: An uncommon tragedy, Journal of Economic Perspectives 8(2), 1994, pages 113-150.
And this is an introduction to the standard critique of that analysis. The basic argument is that real market economies have many more ways of avoiding market failures than the simple network effects models recognize.Recommended
Dennis W. Carlton and J. Mark Klamer, The need for coordination among firms, with special reference to network industries, University of Chicago Law Review 50, 1983, pages 446-465.
This is a frequently cited early article on coordination in infrastructural industries, observing that social welfare in railroads and electronic funds transfer alike requires competitors to work together.Svend Erik Jeppesen and Knud Bruun Poulsen, The text communications battlefield: Installed base, externalities and the fall of the teletex system, Telecommunications Policy 18(1), 1994, pages 66-77.
This is a study of a failed attempt to introduce new standards in the face of network effects and an installed base.Week 4 / Compatibility
Standards come in several varieties, but we are concerned principally with compatibility standards -- the ones that ensure that products work together as they're supposed to. Compatibility standards are important for numerous reasons, perhaps the most important being that they seem path-dependent: once a given compatibility standard becomes widely adopted, it is difficult for everyone to switch to a new standard because new equipment needs to be compatible with old equipment. The nature and limits of this phenomenon is perhaps the central topic of the course.Francois Bar, Michael Borrus, and Richard Steinberg, Islands in the bit-stream: Charting the NII interoperability debate, Working Paper 79, Berkeley Roundtable on the International Economy, 1995.
"Interoperability", a word from the Internet world, appears to mean roughly the same thing as "interconnection", a word from the telecommunications world. The juxtaposition of these two words points to a larger collision of technical, strategic, and regulatory worlds. Bar et al outline various aspects of this collision, and their article (a classic already at three years of age) previews themes that will be developed more fully in later readings.Paul A. David and W. Edward Steinmueller, Standards, trade and competition in the emerging Global Information Infrastructure environment, Telecommunications Policy 20(10), 1996, pages 817-830.
Amidst all of the optimism about the Internet, introduced by Drake above, David and Steinmueller argue the unpopular case that the Internet model is not sustainable. In particular, they argue that both its architecture and its institutional structures will necessarily evolve back toward the bad old telecommunications models.Sanford V. Berg, The production of compatibility: Technical standards as collective goods, Kyklos 42, 1989, pages 361-383.
This is a mathematical model of the conditions under which an economy will produce the optimal amount of compatibility. The starting point of the analysis, I am afraid, appears in an article by Kindleberger that we will read later on, and that it will probably be helpful to preview now.Carl Cargill, Evolution and revolution in open systems, StandardView 2(1), 1994, pages 3-13.
"Open systems" has meant several different things at different points in history, depending on which market was serving as the paradigm example in a given period. Cargill recounts the history and differentiates the meanings.Michael L. Katz and Carl Shapiro, Technology adoption in the presence of network externalities, Journal of Political Economy 94(4), 1986, pages 822-841.
Competing standards often benefit from "sponsors" who are willing to take losses in hopes of profiting later by capturing network externalities once its standard wins in the marketplace. Katz and Shapiro provide a model of such sponsorship decisions, investigating which standard wins in various market configurations.Recommended
Yale M. Braunstein and Lawrence J. White, Setting technical compatibility standards: An economic analysis, Antitrust Bulletin 30(2), 1985, pages 337-355.
This is a widely cited early analysis of the interaction between the economic properties of standards and choices about vertical integration, a fundamental and understandable concern of antitrust policy. The basic point is that antitrust's suspicion of vertical integration should be tempered by its potential efficiencies in a standards-driven market.Week 5 / Organizations
Most people think of standards as documents that are issued by formal standards organizations such as ISO, ANSI, and the IETF. But the world is changing, and the nature and role of these organizations is changing as well. We will consider the inherent economic tensions that underlie cooperative standards activities, the interaction of various players' strategies, the tensions that standards organizations experience as these strategies change, and various potential responses. This week's reading also includes several case studies, all of which are recommended rather than required reading.Timothy Schoechle, The emerging role of standards bodies in the formation of public policy, IEEE Standards Bearer 9(2), 1995, pages 1, 10.
This very brief article anticipates our discussion of standards policy. In it, Schoechle points out that standards organizations promulgate rules that change the world in ways that have material consequences for people's lives, and in that sense they can be viewed as making public policy. This analogy between standards organizations and legislatures is an important counterbalance to the predominance of economic analysis in the literature on standardization. Standardization is not just a marketplace but a public sphere, and it is altogether remarkable how these two seemingly opposite analogies are able to work so well at the same time.Charles P. Kindleberger, Standards as public, collective and private goods, Kyklos 36(3), 1983, pages 377-396.
The production of a standard requires effort and resources, and yet the resulting standard can typically be practiced by a wide variety of parties who did not contribute to it. Conventional theory therefore predicts that the economy will not produce enough standards. This is the most basic economic idea for understanding the dynamics of standards organizations. Kindleberger sketches several historical cases and analyzes the risks of market failure.Paul A. David and Mark Shurmer, Formal standards-setting for global telecommunications and information services, Telecommunications Policy 20(10), 1996, pages 789-815.
As telecommunications becomes increasingly privatized and competitive, the strategic interests of various industry players are increasingly played out in standards-setting forums. As a result, those forums find themselves under increasing tension. David and Shurmer describe these tensions. They point to the increasing attractiveness of by-passing the official forums, and they point to potential reforms that might increase the capacity of those forums to resolve the more complicated and sharply drawn conflicts in the industry.Susanne K. Schmidt and Raymund Werle, The development of compatibility standards in telecommunications: Conceptual framework and theoretical perspective, in Meinholf Dierkes and Ute Hoffman, eds, New Technology at the Outset: Social Forces in the Shaping of Technological Innovations, Frankfurt: Campus Verlag, 1992.
This is an unusually sophisticated theoretical analysis of the interaction among institutional forms, participants interests, and inherent properties of a technology in shaping the formal processes of standardization. Their case study is telecommunications standard-setting in the CCITT.Joseph Farrell and Garth Saloner, Coordination through committees and markets, RAND Journal of Economics 19(2), 1988, pages 235-252.
Standards-setting is an example of the broader phenomenon of coordination. Farrell and Saloner use methematical modeling to inquire into the conditions under which economic self-interest compels market participants to coordinate their activities through formal committees, and when that coordination arises instead through market competition.William Lehr, Compatibility standards and interoperability: Lessons from the Internet, in Brian Kahin and Janet Abbate, eds, Standards Policy for Information Infrastructure, Cambridge: MIT Press, 1995.
The Internet standards process is universally regarded as exceptionally successful, and Lehr's chapter is one of numerous attempts to extract lessons from it that might be applied more broadly. Although some of the IETF's success is due to the favorable environment of its earlier years, more generalizable lessons include the virtues of partial standardization, the insistence on working models, and constant communication among the participants over the Internet itself.Recommended
Kai Jakobs, Rob Procter, and Robin Williams, Users and standardization: Worlds apart? The example of electronic mail, StandardView 4(4), 1996, pages 183-191.
Every standard has an array of stakeholders, and the nature and interests of those stakeholders predict the nature of their participation in standards processes. This article considers the case of electronic mail.Martin B. H. Weiss, Compatibility standards and product development strategy: A review of data modem developments, Computer Standards and Interfaces 12, 1991, pages 109-122.
One common hypothesis in the standards literature is the supposed trend toward anticipatory standards, that is, standards developed in advance of the market instead of in reaction to it. Anticipatory standards make sense when network externalities threaten significant losses for firms whose products become stranded. Given that motivation to agree on a standard a priori, Weiss describes a range of strategies that firms might take in the standards process.Ben Dankbaar and Rob van Tulder, The influence of users in standardization: The case of MAP, in Meinholf Dierkes and Ute Hoffman, eds, New Technology at the Outset: Social Forces in the Shaping of Technological Innovations, Frankfurt: Campus Verlag, 1992.
Another recurring issue in the standards literature is the role of users. Involving users in standardization processes is this literatures' version of motherhood and apple pie, but the ideal is rarely achieved. The situation is most propitious when the users are highly sophisticated, understand their stake in getting good standards, and are organized enough for sustained involvement in the process. Such is the case with manufacturing standards, and companies such as General Motors have even taken considerable initiative to impose standards on their suppliers. And yet, in the end, the process has still been largely dominated by the vendors. Dankbaar and van Tulder explain why this is.Marvin A. Sirbu and Laurence E. Zwimpfer, Standards setting for computer communication: The case of X.25, IEEE Communications Magazine 23(3), 1985, pages 35-45.
Through a case study of the X.25 digital communications standard, Sirbu and Zwimpfer attempt to infer some of the conditions under which standards organizations succeed in achieving consensus around a candidate standard. Some of these conditions pertain to the structure of the standard itself (for example, the advisability of layering) and others pertain to the process of consensus-building (for example, first assembling a coalition in private, offline meetings).Mark Pesce, The great leap downward, Feed, February 1997.
Mark Pesce is the inventor of the Virtual Reality Markup Language (VRML). VRML hasn't taken over the world yet, and one reason for this is the amazing and frequently hilarious story of Pesce's attempt to standardize it. This is his war story.Week 6 / Strategy
Standards-driven markets can be extraordinarily complicated from a strategic perspective. We will consider several aspects of strategy: ensuring the availability of a full product network, anticipating the interactions among different firms' strategies, market-tilting tactics such as preannouncement, and attempts to influence a standard substantively.David J. Teece, Capturing value from technological innovation: Integration, strategic partnering, and licensing decisions, in Bruce R. Guile and Harvey Brooks, eds, Technology and Global Industry: Companies and Nations in the World Economy, Washington, DC: National Academy Press, 1987.
The success of a new product usually does not depend solely on its inherent attributes. Quite the contrary, customers will only buy the product if an array of complementary products is available. As a result, strategists attempting to maximize the return from innovation will naturally wish to analyze the market for these complementary products. A fundamental point of strategy is whether to provide those complementary products oneself.Peter Grindley, Standards Strategy and Policy: Cases and Stories, Oxford: Oxford University Press, 1995. Chapter 2: Framework for Standards Strategy.
Firms in standards-driven markets face at least two choices: whether to pursue open or proprietary standards, and whether to lead or follow the market in the transition to a new standard. The resulting 2x2 matrix of possibilities provides the starting-point for strategic analysis.Joseph Farrell and Garth Saloner, Installed base and compatibility: Innovation, product preannouncements, and predation, American Economic Review 76(5), 1986, pages 940-955.
Farrell and Saloner present a mathemtical model of the consequences of network effects for transitions between standards. The relatively intuitive result is that, because of the network effects that tend to lock customers into the standards they are already using, a market may exhibit "excess inertia" in the transition to a new standard. The less intuitive result is that, if those same customers understand the dangers of being "stranded" in the standard of their installed base, then the market may instead exhibit "excess momentum" in the form of a premature transition to a new standard.Richard Hawkins, Standards for communication technologies: Negotiating institutional biases in network design, in Robin Mansell and Roger Silverstone, eds, Communication by Design: The Politics of Information and Communication Technologies, Oxford: Oxford University Press, 1996.
This is a sophisticated theoretical analysis of the idea that standards can embody inherent biases. It follows that competition over standards is not simply a matter of who defines the standards, but also a matter of what the standard substantively consists of, and what its consequences will be once it is placed in operation. These considerations define a strategic field of great complexity, and they help explain the dynamics of standardization processes, and particularly the forums that established players choose in pursuing their standardization goals in a supposedly globalizing context.H. Landis Gabel, Competitive Strategies for Product Standards: The Strategic Use of Compatibility Standards for Competitive Advantage, London: McGraw-Hill, 1991. Chapters 3 and 9.
Chapter 3 is a study of video recorders, and chapter 9 is a series of theses that Gabel conjectures as a result of the full range of studies in his book.Recommended
Marvin B. Lieberman and David B. Montgomery, First-mover advantages, Strategic Management Journal 9, 1988, pages 41-58.
This article does not specifically concern standards. It is, rather, an attempted taxonomy of the whole range of advantages that can accrue to the first firm to enter a given market. I have included it to provide us with a context in which to examine the oversimple conventional wisdom that the first standard to market wins. Moving first is not necessarily the optimal strategy, and the potential benefits of first-movership are more various than those involved with standards alone.Peter Grindley, Standards Strategy and Policy: Cases and Stories, Oxford: Oxford University Press, 1995. Chapters 4-6.
These are three case studies from Grindley's book: VCR's (in which the lesson concerns the creation of alliances around a standard), compact discs and digital audio tape (in which the lesson concerns market timing), and personal computers (in which the lesson concerns open standards and the conditions under which they can succeed). Observe that we are also reading Gabel's study of the celebrated case of video recorders; we will have the opportunity to compare and contrast.Stanley M. Besen and Joseph Farrell, Choosing how to compete: Strategies and tactics in standardization, Journal of Economic Perspectives 8(2), 1994, pages 117-131.
Standards competitions are not always simple matters of symmetrically organized, head-to-head battles to the death between conflicting standards. Individual firms have many other choices, such as adopting another firm's standard and competing on production efficiencies. Because the rewards of each strategy depend on the strategies chosen by others, competition in standards markets has a game-theoretic quality. Besen and Farrell's model attempt to preduct which strategies will be chosen depending on each firm's relative initial positioning in the marketplace.Robin Mansell, Designing electronic commerce, in Robin Mansell and Roger Silverstone, eds, Communication by Design: The Politics of Information and Communication Technologies, Oxford: Oxford University Press, 1996.
Arguing along similar lines to Hawkins, Mansell argues that electronic commerce standards have typically evolved in ways that inherently favored the interests of the most powerful players.Week 7 / Modularity
An emerging theme in the literature is the interaction between the structure of products and the structure of industries and firms. We will consider the specific case of modularity. Technical people tend to portray modularity as an ahistorical design norm, but this approach cannot tell us the conditions under which markets produce modular systems. We will consider the matter in both its empirical and a strategic aspects.Kim B. Clark, The interaction of design hierarchies and market concepts in technological evolution, Research Policy 14, 1985, pages 235-251.
Clark argues that markets mature from a fluid state toward a more rigid, standardized state in large part through the consolidation of the customers' concept of the product. Examples are drawn from cars and semiconductors.Carliss Y. Baldwin and Kim B. Clark, Managing in an age of modularity, Harvard Business Review 75(5), 1997, pages 84-93.
This is a relatively breezy article for managers about the competitive issues that arise as markets evolve toward modularity.Richard N. Langlois and Paul L. Robertson, Networks and innovation in a modular system: Lessons from the microcomputer and stereo component industries, Research Policy 21(4), 1992, pages 297-313.
This is a qualitative analysis of the conditions under which complicated products such as computers and stereo systems are provided as separate modular components, and when they are provided as integrated products. They suggest that modularity is linked with horizontal and vertical disintegration, and they express cautious (and I think far too hopeful) optimism that markets tend toward modularity because of the efficiencies that disintegration brings.Nicholas Economides and Steven C. Salop, Competition and integration among complements, and network market structure, Journal of Industrial Economics 40(1), 1992, pages 105-123.
Economides and Salop provide a mathematical model of complementary products in network markets. The remarkably difficult question is when the products are provided as an integrated unit by the same firm and when they are provided independently in the marketplace.Marc H. Meyer and Alvin P. Lehnerd, The Power of Product Platforms: Building Value and Cost Leadership, New York: Free Press, 1997. Chapter 2: Managing Product Platforms.
A product platform is a common core for a whole family of related products. By defining a set of in-house standards, the platform permits design and manufacturing costs to be shared among several products. This chapter discusses the interaction between the structure of a product family and the structure of the market spaces that the various products will address.Week 8 / Policy
For people from many backgrounds, standards tend to imply de jure standards set by the government, or through formal negotiations between governments. This was historically the case in telecommunications, but as world changes the question arises of government's proper role in the standards process. Ideological approaches to the question tend toward the predictable extremes, but in the middle lies a very complicated range of alternatives whose advisability depends on the interactions among numerous aspects of the standardization process.Lewis M. Branscomb and Brian Kahin, Standards processes and objectives for the National Information Infrastructure, in Brian Kahin and Janet Abbate, eds, Standards Policy for Information Infrastructure, Cambridge: MIT Press, 1995.
Branscomb and Kahin are close to the ground of government policy processes, and their introductory chapter to the very useful "Standards Policy for Information Infrastructure" volume is written in the language of those processes. It quickly surveys issues such as competing models for the standards process, the increasing sophistication of users, the emergence of standards consortia, intellectual property, and the several potential roles for government in the new standards environment.Paul A. David, Standardization policies for network technologies: The flux between freedom and order revisited, in Richard Hawkins, Robin Mansell, and Jim Skea, eds, Standards, Innovation and Competitiveness: The Politics and Economics of Standards in Natural and Technical Environments, Edward Elgar, 1995.
The choice between standardization and non-standardization is often framed as a choice between the respective virtues of order and freedom, and standards policy is consequently framed in similar terms. David, though, argues that this analysis is ill-posed. Instead, he urges us to view the institutional processes of standards-setting as a dynamic response to a dynamic environment. The consequences for policy are complicated and largely pessimistic.Samuel Krislov, How Nations Choose Product Standards and Standards Change Nations, Pittsburgh: University of Pittsburgh Press, 1997. Chapter 9: The Evolution of Standards and the Processes of Formalization.
Krislov's book is a comparative study of standardization policies as part of broader national industrial and economic strategies. This concluding chapter draws on his case studies of the United States, European Union, Japan, and the erstwhile Soviet Europe by placing the evolution of standards and standardization processes in that broader institutional perspective.Sanford V. Berg, Public policy and corporate strategies in the AM stereo market, in H. Landis Gabel, ed, Product Standardization and Competitive Strategy, Amsterdam: North-Holland, 1987.
AM radio in the United States is an example of a laissez faire policy that led to rapid, sharp competition between competing standards, selecting a clear winner without stranding too many consumers. Berg briefly recounts the particulars and tries to derive lessons for the broader question of markets for interdependent components.Joseph Farrell, Standardization and intellectual property, Jurimetrics Journal 30(1), 1989, pages 35-50.
Farrell argues that the market dynamics of standards recommend a limited role for intellectual property protection in general and copyright in particular. If the economy benefits from compatibility, then the difficult question is whether and when intellectual property rights encourage markets to evolve toward compatibility.Recommended
Samuel Krislov, How Nations Choose Product Standards and Standards Change Nations, Pittsburgh: University of Pittsburgh Press, 1997. Chapter 6: Standards in the European Community.
Krislov's study of the European Community describes standards policy as part of a larger project of economic integration.W. Edward Steinmueller, The political economy of data communication standards, in Richard Hawkins, Robin Mansell, and Jim Skea, eds, Standards, Innovation and Competitiveness: The Politics and Economics of Standards in Natural and Technical Environments, Edward Elgar, 1995.
This is a brief but sophisticated analysis of the consequences of the public good character of standards for the development of communications protocols. The argument is particularly useful because it turns on the role of such protocols in shaping organization and industry structures through their effect on transaction and coordination costs.David J. Gerber, Intellectual property rights, economic power, and global technological transformation, Chicago-Kent Law Review 72, 1996, pages 463-476.
Gerber's article is a brief introduction to the issues that arise as intellectual property policy responds to the globalization of markets.Week 9 / Antitrust
The most topical policy question relating to standards is antitrust law. A company that owns proprietary de facto standards possesses a license to print money, particularly when those standards enable the company to leverage its control into new markets. The law is struggling to comprehend this phenomenon in traditional antitrust categories, and we will consider a range of opinions.Mark A. Lemley, Antitrust and the Internet standardization problem, Connecticut Law Review 28, 1996, pages 1041-1094.
This is a lengthy but lucid explication of the theory of standards lock-in as applied to antitrust law. Its conclusions are skeptical. Antitrust law is held to be incapable of regulating standards-driven industries, and standards organizations are held to be overwhelmingly pro-competition.Bryce J. Jones, II, and James R. Turner, Can an operating system have a duty to aid its competitors?, Jurimetrics 37(4), 1997, pages 355-394.
When markets are dominated by proprietary standards, it is commonly argued that the standard constitutes an "essential facility" in the sense provided by American antitrust law. This argument is almost never successful in court, but Jones and Turner lay it out nonetheless in the case of Microsoft Windows.S. J. Liebowitz and Stephen E. Margolis, Should technology choice be a concern of antitrust policy?, Harvard Journal of Law and Technology 9(2), 1996, pages 283-318.
These scholars, as we have already seen, are highly skeptical of the network externality theory of market failure. In this article they apply their critiques to antitrust issues, arguing that the foresight and sophistication of market participants is sufficient to ensure that the best technology wins in a standards competition. The consequence, of course, is that the government has no reason intervene.Recommended
W. Brian Arthur, Competing technologies: An overview, in Giovanni Dosi, Christopher Freeman, Richard Nelson, Gerald Silverberg, and Luc Soete, eds, Technical Change and Economic Theory, London: Pinter, 1988.
Arthur's economic model of technological lock-in through positive returns to scale suggests that monopolies can arise through self-reinforcing market mechanisms, and that those mechanisms do not necessarily select the optimal technology. The model abstracts away from far too many aspects of real-world technology markets to be evaluated in isolation, but it suggests many possible lines of research. I have included it as a recommended reading because is cited heavily in both the popular and legal literature.James J. Anton and Dennis A. Yao, Standard-setting consortia, antitrust, and high-technology industries, Antitrust Law Journal 64, 1995, pages 247-265.
Standardization activities, whether conducted through formal standards organizations or through private consortia, strongly resemble illegal marketplace collusion. Society obviously needs standards, however, and so it is important to determine the difference between socially necessary standardization activities and standardization activities that mask illegal market fixing. This article applies some of the economic theories that we've already read to an analysis of the problem.Joseph Kattan, Market power in the presence of an installed base, Antitrust Law Journal 62, 1993, pages 1-21.
On one analysis, the dispute between the Justice Department and Microsoft concerns what antitrust lawyers call "tying". This article analyzes the leading tying case, in which Kodak required the companies that bought its photocopiers to purchase parts and supplies for those copiers exclusively from Kodak. The intuition is that this constitutes restraint of trade to the extend that the vendor has market power, and the question then arises of what market power is and how one measures it.Week 10 / Implementation
We'll focus mainly on the case studies this week, so the reading is light. I just want to remind us that proclaiming a standard does not automatically cause the world to become uniform. This week's readings, therefore, show what happens when standards are put into practice. In particular, I want to point at the interaction between the standardization of information and communications technologies, which has been our primary focus, and the standardization of everything else in the world.Stefan Timmermans and Marc Berg, Standardization in action: Achieving local universality through medical protocols, Social Studies of Science 27(2), 1997, pages 273-305.
Several traditions in science and technology studies have used ethnographic methods to argue that standards are social constructions. That doesn't mean that they aren't real, but it does force a sophisticated rethinking of what it means for them to be real. This article derives from the same "actor network" school as Callon's article in week 2. It describes some of work that is required in executing work processes in a standardized way -- that is, in a way that a bureaucracy can recognize as conforming to a standard -- together with the cascading consequences of this work.Geoffrey Bowker, Information mythology: The world of/as information, in Lisa Bud-Frierman, ed, Information Acumen: The Understanding and Use of Knowledge in Modern Business, London: Routledge, 1994.
Technical people are accustomed to defining the behavior of a computer solely in terms of its internal workings. As Bowker points out, however, most computers process information that derives from diverse places and times in the world. Those numbers will only be useful if they are commensurable, and they will only be commensurable if the world itself is standardized, together with the practices by which the numbers are defined and captured. Simple though it may be, this observation has profound consequences for our understanding of computers and computation.Mark Casson, Economic perspectives on business information, in Lisa Bud-Frierman, ed, Information Acumen: The Understanding and Use of Knowledge in Modern Business, London: Routledge, 1994.
Casson's chapter is a whirlwind introduction to information economics. Markets are frequently claimed to have near-miraculous properties, but underneath those claims are numerous assumptions, including the assumption that information is plentiful and free. But information is a commodity that gets produced and distributed like any other, and it will only get produced in large quantities if somebody pays for it. One consequence of this seeming paradox, Casson argues, is that increases in the efficiency of information production will cause reality to approximate the wonderland of economics. Put this argument together with Bowker's, and it becomes possible to comprehend the profound embedding of computers in evolving institutional arrangements.Reading list
The following is a complete list of the works that I consulted in preparing the syllabus. If you are aware of other relevant materials, I would greatly appreciate a citation that I can include in future editions of the course.
Frederick M. Abbott, Public policy and global technological integration: An introduction, Chicago-Kent Law Review 72, 1996, pages 345-356.
Lloyd C. Anderson, United States v. Microsoft, antitrust consent decrees, and the need for a proper scope of judicial review, Antitrust Law Journal 65, 1996, pages 1-40.
Cristiano Antonelli, The dynamics of technological interrelatedness: The case of information and communication technologies, in Dominique Foray and Christopher Freeman, eds, Technology and the Wealth of Nations: The Dynamics of Constructed Advantage, London: Pinter, 1993.
W. Brian Arthur, Competing technologies, increasing returns, and lock-in by historical events, The Economic Journal 99, 1989, pages 116-131.
W. Brian Arthur, Increasing returns and the new world of business, Harvard Business Review 74(4), 1996, pages 100-109.
William P. Barnett, The organizational ecology of a technological system, Administrative Science Quarterly 35(1), 1990, pages 31-60.
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