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The Handbook of Technology and Innovation Management by Scott Shane

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9.5. Nonmarket Processes of Standardization

Although in many cases standardization occurs through competition (either sponsored or unsponsored), nonmarket processes may also shape the outcome. These processes take a variety of forms. Confronted with an incipient or active standards war, firms may behave cooperatively to settle things through joint ventures, consortia, or other alliances. More formal processes of standardization also exist precisely to spur coordination. Standards Development Organizations (SDOs) and Standard-Setting Organizations (SSOs) have become prominent institutional features of technology markets, serving to foster cooperative standardization. Finally, governments have become involved in standard-setting where they perceive lock-in or coordination problems to be particularly severe. In this section we discuss these alternative processes.

9.5.1. Consortia and alliances

As we discussed earlier, coordination is a central problem in standardization. Clearly, if firms can internalize network effects through integration they can in many cases mitigate inefficiencies in standardization and/or avoid costly standards wars. For example, banks have integrated into markets for both ATM cards and ATM machines, internalizing (at least partially) the indirect network effect between these two services. Work by Knittel and Stango (2007, 2008) estimates that the provision of ATM machines by banks has an economically significant relationship with the value that consumers ...

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