This paper develops a framework to investigate the optimal timing of standardization in which the tradeoff between standardization and experiment is explicitly analyzed. Ex ante standardization ensures early benefits of compatibility while the standard chosen could be a 'wrong' one since the decision is made without precise information about the actual values of potential technologies. Ex post standardization relies on the market mechanism to achieve de facto standardization after experimentation. The advantage of this approach is that the standardization decision can be based on better information about qualities. The cost is the transient loss of compatibility benefit in the experimentation stage. The market outcome is shown to generate too little ex post standardization after experimentation compared with the social optimum. Alternatively, users adopt ex ante standardization too frequently compared with the social optimum.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics
- Political Science and International Relations