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Rational Incompatibility With International Product Standards

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  • Barrett, Christopher B.
  • Yang, Yi-Nung

Abstract

This paper considers the incentives of firms to conform to an exogenous international product standard. Product standardization enables traditional, price-based international competition. But the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market. This leads to multi-attribute competition between products and will generally reduce trade flows. Not only do incumbent firms using a different technology have an incentive to deviate from the international standard, but a host country government that is also concerned for the welfare of consumers who own the old technology has no incentive to enforce the international standard. Indeed, the government may value deviation from the international standard more than the firm does, thereby creating incentives to adopt and enforce technical barriers to trade. The results highlight the challenge lock-in effects pose to the international standard-setting process.

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Bibliographic Info

Paper provided by International Agricultural Trade Research Consortium in its series Working Papers with number 14597.

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Date of creation: 1999
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Handle: RePEc:ags:iatrwp:14597

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Related research

Keywords: compatibility; international standardization; network effects; redesign costs; technical barriers to trade; International Relations/Trade; F02; F13; F15; L11; L13; L51;

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References

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  1. Katz, Michael L & Shapiro, Carl, 1985. "Network Externalities, Competition, and Compatibility," American Economic Review, American Economic Association, vol. 75(3), pages 424-40, June.
  2. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
  3. Carmen Matutes & Pierre Regibeau, 1988. ""Mix and Match": Product Compatibility without Network Externalities," RAND Journal of Economics, The RAND Corporation, vol. 19(2), pages 221-234, Summer.
  4. Casella, Alessandra, 1997. "Product Standards Coalitions in a Market without Borders," CEPR Discussion Papers 1584, C.E.P.R. Discussion Papers.
  5. Pargal, Sheoli, 1996. "Do incompatible network standards lead to domestic benefits? The case of color television," Information Economics and Policy, Elsevier, vol. 8(3), pages 205-227, September.
  6. Shy, Oz, 1996. "Technology revolutions in the presence of network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 785-800, October.
  7. Gandal, Neil, 1995. "Competing Compatibility Standards and Network Externalities in the PC Software Market," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 599-608, November.
  8. Kindleberger, Charles P, 1983. "Standards as Public, Collective and Private Goods," Kyklos, Wiley Blackwell, vol. 36(3), pages 377-96.
  9. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
  10. Katz, Michael L & Shapiro, Carl, 1986. "Product Compatibility Choice in a Market with Technological Progress," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 146-65, Suppl. No.
  11. Matutes, Carmen & Regibeau, Pierre, 1996. "A selective review of the economics of standardization. Entry deterrence, technological progress and international competition," European Journal of Political Economy, Elsevier, vol. 12(2), pages 183-209, September.
  12. Farrell, Joseph & Saloner, Garth, 1986. "Standardization and variety," Economics Letters, Elsevier, vol. 20(1), pages 71-74.
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Citations

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Cited by:
  1. Joseph A. Clougherty & Michal Grajek, 2009. "ISO 9000: New form of protectionism or common language in international trade?," ESMT Research Working Papers ESMT-09-006, ESMT European School of Management and Technology.
  2. Swinnen, Johan F.M. & Vandemoortele, Thijs, 2009. "Trade, Development, and the Political Economy of Public Standards," 113th Seminar, September 3-6, 2009, Chania, Crete, Greece 58139, European Association of Agricultural Economists.
  3. Clougherty, Joseph A. & Grajek, Michal, 2012. "International Standards and International Trade: Empirical Evidence from ISO 9000 Diffusion," CEPR Discussion Papers 9047, C.E.P.R. Discussion Papers.
  4. Deodhar, Satish Y. & Rastogi, Siddhartha K., . "Indo-US Trade in Wheat and Mango: A Game-Theoretic Approach to SPS Standards," IIMA Working Papers WP2008-03-04, Indian Institute of Management Ahmedabad, Research and Publication Department.
  5. Toru Kikuchi & Chiharu Kobayashi, 2007. "Network Effects and the Impact of Trade Liberalization," Economics Bulletin, AccessEcon, vol. 6(4), pages 1-7.
  6. Frank van Tongeren & John Beghin & Stéphane Marette, 2009. "A Cost-Benefit Framework for the Assessment of Non-Tariff Measures in Agro-Food Trade," OECD Food, Agriculture and Fisheries Papers 21, OECD Publishing.
  7. Vitor Trindade & Johannes Moenius, 2007. "Networks, Standards and Intellectual Property Rights," Working Papers 0705, Department of Economics, University of Missouri.
  8. Chevassus-Lozza, Emmanuelle & Latouche, Karine & Majkovic, Darja, 2007. "How Much do Non-Tariff Measures Explain the Border Effect at Entry to the EU Market? The CEECs Agri-Food Exports to EU in the Pre-Accession Period," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 9852, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  9. Chevassus-Lozza, Emmanuelle & Latouche, Karine & Majkovic, Darja & Unguru, Manuela, 2008. "The importance of EU-15 borders for CEECs agri-food exports: The role of tariffs and non-tariff measures in the pre-accession period," Food Policy, Elsevier, vol. 33(6), pages 595-606, December.
  10. Mikhail Klimenko & Kamal Saggi, 2004. "Technical Compatibility and the Mode of Foreign Entry under Network Externalities," Working Papers 04-05, NET Institute, revised Oct 2004.
  11. repec:ebl:ecbull:v:6:y:2007:i:4:p:1-7 is not listed on IDEAS
  12. Hoekman, Bernard & Mavroidis, Petros C., 2002. "Economic development, competition policy, and the World Trade Organization," Policy Research Working Paper Series 2917, The World Bank.
  13. Walz, Uwe & Woeckener, Bernd, 2003. "Compatibility Decisions, Endogenous Installed Home Bases and the Third-Market Competition," CEPR Discussion Papers 3816, C.E.P.R. Discussion Papers.

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