An economic basis for open standards

This paper provides an overview of standards and standard-setting processes. It describes the economic effect of technology standards - de facto as well as de jure - and differentiates between the impact on competition and welfare that various levels of standards have. It argues that most of what is claimed for "open standards" in recent policy debates was already well encompassed by the term "standards"; a different term is needed only if it is defined clearly in order to provide a distinct economic effect.
This paper argues that open standards, properly defined, can have the particular economic effect of allowing "natural" monopolies to form in a given technology, while ensuring full competition among suppliers of that technology. This is a distinct economic effect that deserves to be distinguished by the use of a separate term, hence "open" rather than "ordinary" standards - referred to as "semi-open" in this paper.
The paper explains why open standards must allow all possible competitors to operate on a basis of equal access to the ability to implement the standard, and why this means that the economic effect of open standards may require different conditions for different markets.
In most software markets, where Free/Libre/Open Source Software (FLOSS) provides significant competition, open standards can only be those that allow equal access to FLOSS producers.
A case is made for public procurement to support open standards, and empirical evidence provided from an analysis of actual tenders as well as from the FLOSSPOLS survey of government authorities to demonstrate how procurement policies in practice come in the way of competitive markets for software products. Finally, some guidelines are provided for effective policy in relation to open standards and interoperability:
1. open standards should be defined in terms of a desired economic effect: supporting full competition in the market for suppliers of a technology and related products and services, even when a natural monopoly arises in the technology itself;
2. open standards for software markets should be defined in order to be compatible with FLOSS licenses, to achieve this economic effect;
3. compatibility with proprietary technologies should be explicitly excluded from public procurement criteria and replaced by interoperability with products from multiple vendors;
4. open standards should be mandatory for eGovernment services and preferred for all other public procurement of software and software services.

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Keywords:

Interoperability, Natural monopoly, Network externalities, Open standards, Standards

Additional information:

Language(s):English
AuthorsGhosh, Rishab A. (University of Maastricht)
Publisher:MERIT, University of Maastricht
Keywords:Interoperability, Natural monopoly, Network externalities, Open standards, Standards
Last update:2005