The Handbook of Technology and Innovation Management

9.7. Conclusions

The emergence of standardization in markets with network effects is justifiably receiving greater attention than ever before, from academics, industry observers, and policymakers. At this point, the questions are well known: Do markets select the right standards? Do they move between standards too swiftly or too slowly? How do nonmarket mechanisms perform by comparison?

Answers are less readily forthcoming. Certainly, theoretical work in network economics has clarified our understanding of the circumstances under which the classic problems associated with lock-in can occur. But this literature has also shown that many outcomes are possible. Decentralized market mechanisms may produce desirable outcomes or distort them, depending on the market structure, chance historical events, and changes in the costs of technicalalternatives. Diffuse market structures produce coordination problems and communication difficulties, but also much innovation. More concentrated market structures will alleviate some of the communication problems, but strategic interests will distort incentives away from optimal outcomes. Administrative processes may ameliorate communication problems, but internal political battles will distort outcomes in other ways.

Unfortunately, because there has been relatively little empirical study of standards, many key questions remain unanswered. At this point, one of the largest gaps in the theoretical literature is the relative lack of work modeling the ...