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Estimating the Costs of Standardization: Evidence from the Movie Industry

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  • El Hadi Caoui

Abstract

This paper studies the decentralized adoption of a technology standard when network effects are present. If the new standard is incompatible with the current installed base, adoption may be inefficiently delayed. I quantify the magnitude of “excess inertia” in the switch of the movie distribution and exhibition industries from 35mm film to digital. I specify and estimate a dynamic game of digital hardware adoption by theaters and digital movies supply by distributors. Counterfactual simulations establish that excess inertia reduces surplus by 19% relative to the first-best adoption path; network externalities explain 29% of the surplus loss.

Suggested Citation

  • El Hadi Caoui, 2019. "Estimating the Costs of Standardization: Evidence from the Movie Industry," CESifo Working Paper Series 8040, CESifo.
    • Handle: RePEc:ces:ceswps:_8040
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8040.pdf
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    References listed on IDEAS

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    2. Victor Aguirregabiria & Allan Collard-Wexler & Stephen P. Ryan, 2021. "Dynamic Games in Empirical Industrial Organization," Papers 2109.01725, arXiv.org, revised Sep 2021.

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    More about this item

    Keywords

    technology adoption; network effects; movie industry;
    All these keywords.

    JEL classification:

    • L82 - Industrial Organization - - Industry Studies: Services - - - Entertainment; Media
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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