Evolution of Standards and Innovation
AbstractWe develop a framework to examine how a standard evolves when a standard consortium or firm (incumbent) innovates either to improve the standard or to strengthen the installed base, which increases switching costs. Both investments make it more difficult for another firm (entrant) to introduce a standard by investing in technology improvement. Our analysis shows that that incumbent’s strategy depends on whether the technology is in its infancy or has matured, and that entrants cannot supplant the existing standard. A standard consortium brings dynamic benefits by preventing replacement by an entrant. When the technology is in its infancy, the incumbent deters entry, but when the technology is mature, entry and the coexistence of two standards are tolerated. The dominance of a single standard, even for well-established technologies, suggests that incumbents have market power. Our results also suggest that having superior technology is not enough to enable entrants to supplant an existing standard.
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Bibliographic InfoPaper provided by Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University in its series CIS Discussion paper series with number 619.
Length: 38 p.
Date of creation: Mar 2014
Date of revision:
standards; innovation; technology; upgrades; standardization; replacement effect;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-18 (All new papers)
- NEP-COM-2014-04-18 (Industrial Competition)
- NEP-INO-2014-04-18 (Innovation)
- NEP-KNM-2014-04-18 (Knowledge Management & Knowledge Economy)
- NEP-TID-2014-04-18 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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