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2003 | Buch

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The Evolution of Standards

verfasst von: Volker Simmering

Verlag: Deutscher Universitätsverlag

Buchreihe : Ökonomische Analyse des Rechts

Enthalten in: Professional Book Archive

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Foreword The first essay in Volker Simmering's study in The Evolution of Standards, undertaken while at the Graduate Programme in Law and Economics in cooperation with the Institute of SocioEconomics at the University of Hamburg, examines the effects of "globalization" on the evolution of global standard(). The central result of this essay is that there may be too few global standards and those which do evolve are not necessarily efficient; a result that is at odds with standard economic reasoning. Simmering derives his result from the application evolutionary theory - which is becoming increasingly popular in economics, the social sci ences, and philosophy. This branch of theory focuses on the convergence and selection of equilibria and its attendant reduction of variety. Simmering's study, very interestingly, indicates a major difference in the results of evolu tionary reasoning when applied to the coordination of human interaction to that at the species level. Simmering shows how variety is reduced to produce homogeneity or compatibility; while in biology it has been to show how variety emerges. For example, in his The Origin of Species (1859), Charles Darwin tried to give an interpretation of the characteristics, diversity, and distribution of the various forms of animal and plant life as the result of a historical proc ess involving descent with modification.

Inhaltsverzeichnis

Frontmatter

1. Introduction

Abstract

The first human beings that suffered from a lack of standards might have been the residents of Babel. In order to stop their ambitious attempt to build a tower that reaches the heavens, God made them speak different languages. Since verbal communication proved to be an essential coordination facility in Babel, their project failed disastrously and the people from Babel dispersed throughout the world. This story illustrates an important property that languages possess, which is also shared by many other goods: their “value” is positively correlated to the number of people who adopt the same “goods” — in other words, they exhibit “network effects”. Such adoption externalities play a major role in modern life. The value of an Internet portal, a specific type of music player as well as many social and legal (coordination) norms and other institutions, for example, heavily depends on the (expected) number of people that adopt thesame or compatible “goods”. Since thus, in turn, individuals’ benefits may crucially depend on other players making the same (or a compatible) choice, the evolution of standards is of vital importance in these areas.

Volker Simmering

2. The Economics of Networks, Compatibility and Standardization: Definitions, Basic Concepts and Insights

Abstract

This chapter gives a brief introduction into the economics of networks and explains some concepts, insights and definitions, which we refer to in subsequent sections. First, the central concept of network effects is outlined in section 2.1 and it is briefly discussed how these effects potentially affect the performance of competitive markets (section 2.2). In section 2.3, we define the notions of compatibility, standardization and harmonization as they are used in this study. Section 2.4 briefly characterizes the role of switching costs, as far as they are relevant for the study, and attempts to outline their role in network markets. Section 2.5 deals with producers’ incentives for establishing compatibility. Finally, section 2.6 briefly summarizes the results of the relevant empirical studies.

Volker Simmering

3. An Evolutionary Approach to Network Effects and Globalization

Abstract

Many standards vary across countries. On the one hand, this seems to indicate a desirable consequence of well functioning markets: if preferences vary across countries, one expects that goods are tailored to these different needs. On the other hand, however, with “globalization” different populations become more and more integrated. As the discussion in section 2.3 has shown, integration of incompatible networks — which is what globalization leads to if populations keep incompatible national standards — diminishes the network benefits of purely national standards. This leads us to the following questions: Do markets⁴⁶ react efficiently on increasing integration of countries (“globalization”)? In particular, if goods are inherently incompatible, does globalization produce too much or too little harmonization? If globalization leads to harmonization, does it yield harmonization too early or too late? Does it imply that the “right” standard is implemented?

Volker Simmering

4. Mandatory or Voluntary Standards?

Abstract

Our analysis in section 3 suggests that globalization does not produce enough global standards. Even in cases where harmonization of national standards actually occurs, it does so too late from a societal point of view. Double adoptions or converters, if available, may help yet not eliminate the problem. Moreover, the “wrong” global standard may prevail. Of course, in face of potentially severe side-effects, the results of our model alone cannot justify policy intervention. However, the WTO Agreement on Technical Barriers to Trade concluded within the framework of the Uruguay Round in 1993, as well as considerable efforts on the EU-level are evidence that policy-makers do actually consider more harmonization of national standards as a desirable goal.⁸⁷

Volker Simmering

5. The Impact of Users’ Commitments on Technological Progress in Network Industries

Abstract

This essay analyzes whether (inherently incompatible) new superior network technologies prevail over established ones, even though early switchers are worse off at the beginning. Although we consider one homogenous population, only, one should keep in mind that this problem can be similar to the harmonization problem: the analysis in section 3 has shown that agents might stick with their domestic standard, even if they are better off if all of them switched to the alien one. Obviously, in such a situation, harmonization is nothing more than transition to a superior standard.

Volker Simmering

6. Voting on Harmonization

Abstract

In the previous sections, we have identified several potential market failures associated with network effects, and, moreover, we have asked whether and how “policy” or some “authorized body” should intervene. Considering the authorized body as an entity that strives to achieve some well-defined goal, we however ignored the decision process within such a body. For example, in section 4, we assumed that Europe’s official standardization bodies (ESBs) set standards in order to produce a shift from variety to harmonization. Although we argued that bureaucratic incentives common to the ESBs’ decision makers might bias that body’s objective function, we abstracted from possible conflicts among the decision makers within the ESBs. In fact, conflicts are likely to be present within such bodies. Recall that, e.g., CEN/CENELEC’s members are the “official” national standardization bodieslike CEN/CENLEC and ISO/IEC²⁰⁹, apply voting. However, is voting an appropriate mechanism for collective decision-making in such bodies?²¹⁰

Volker Simmering

7. Summary of Findings

Abstract

Three essays on the evolution of standards in networks have been presented. The first essay has investigated how increasing integration among countries (“globalization”) affects the evolution of global standards. We have introduced an evolutionary game theoretic model, which allows for the explicit analysis of exogenously driven globalization. Our analysis suggests that globalization does not necessarily implement international harmonization of (perfectly) incompatible standards even if it is efficient. Moreover, even if increasing globalization eventually implements harmonization there are two pitfalls. First, harmonization typically occurs too late from a social point of view. Second, increasing globalization may produce harmonization with an inferior standard. It has also been analyzed how double adoptions or converters may affect these results. We have found that the availability of double adoptions supports harmonization, even if they do not occur in (stable) equilibrium. Nevertheless, even though efficient harmonization is more likely to occur, it still comes with the risk that market-induced harmonization makes populations end up with an inferior standard.

Volker Simmering

Backmatter

Titel: The Evolution of Standards
verfasst von: Volker Simmering
Verlag: Deutscher Universitätsverlag
Electronic ISBN: 978-3-322-81514-9
Print ISBN: 978-3-8244-7832-3
DOI: https://doi.org/10.1007/978-3-322-81514-9

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Inhaltsverzeichnis

Frontmatter

1. Introduction

2. The Economics of Networks, Compatibility and Standardization: Definitions, Basic Concepts and Insights

3. An Evolutionary Approach to Network Effects and Globalization

4. Mandatory or Voluntary Standards?

5. The Impact of Users’ Commitments on Technological Progress in Network Industries

6. Voting on Harmonization

7. Summary of Findings

Backmatter