Transcript Economics of Technical Compatibility Standards

Economics of Technical
Compatibility Standards
Yale Braunstein
Background - 1
 Consumers desire to consume a “portfolio”
from a repertory independent of format
 What about specialization in consumption?
 (Relatively) high cost of conversion
 (Relatively) high cost to have multiple “players”
 (Relatively) high cost to have duplicate sets of
content
Background - 2
 This is more than the typical Chamberlain problem

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Lack of economies of scale in production
(Possible digression on guns & bullets)
 Compatibility problems can be on one or more of
several levels
 Example: voltage, physical connectors for plugs &
outlets; AC current frequency, etc.
 Both private & social costs & benefits

Compatibility is not costless; social costs may
include costs of foregoing options (stifling
innovation)
A few examples
 Users wish to connect peripheral devices to
computers
 Viewers/listeners prefer to receive all broadcast
programming
 Users wish to use pre-recoded media as well as
make their own recordings
 Shippers prefer to have freight stay in one car or
container
 Digression on RR gauges
ISO OSI 7-layer model
7.) Application
6.) Presentation
5.) Session
4.) Transport
3.) Network
2.) Data Link
1.) Physical
Approaches to compatibility
 National & international standards bodies

ITU, ETSI, ANSI, …
 Directed vs. undirected

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National industrial policy
Leave it to the market
Compulsory licensing
Require open standards
 Ethernet as a case study
More on social gains & losses
 Gains

Reduction in “translation” costs, duplicate
equipment, duplicate repertories, etc.
 Losses

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Loss of technologies with unique properties or
highly valued by a few
Premature scrapping of no-longer compatible
equipment
Barriers to entry
 Timing


Premature decisions forcing compatibility may lead
to “wrong” choices
But, the longer you wait, the greater the “lost”
investment
Positive models
 Importance of “specialized” vs. “portfolio”
consumers
 Importance of “locus” of decision making

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
Equipment manufacturers
Broadcasters
Etc.
Antitrust & regulatory issues
 Be suspicious of arrangements that are collusive
or increase barriers to entry
 Vertical integration may be socially useful
 Regulate to avoid negative externatities