Standardization, compatibility, and innovation

There are often benefits to consumers and to firms from standardization of a product. We examine whether these standardization benefits can "trap" an industry in an obsolete or inferior standard when there is a better alternative available. With complete information and identical preferences among firms the answer is "no"; but when information is incomplete this "excess inertia" can occur. The extent to which the problem can be overcome by communication is also discussed.

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Keywords:

Asymmetric inertia, Compatible products, Network externalities, Symmetric inertia

Additional information:

Language(s):English
AuthorsFarrell, Joseph (GTE Labs and Massachusetts Institute of Technology), Saloner, Garth (Massachusetts Institute of Technolo)
Publisher:Wiley
Keywords:Asymmetric inertia, Compatible products, Network externalities, Symmetric inertia
Last update:1985