How can standards be classified?
Standards can be classified in:
Product standards: e.g., the international toy safety standards.
Process standards: e.g., environmental standards
Type of product differentiation vertical vs. horizontal
Vertical: construction industry standards
Horizontal: fire protection and first aid standards
Private (voluntary or proprietary)
Public (mandatory or voluntary
De facto (e.g. Microsoft and VHS)
synonym for voluntary open standards
What do we mean by “systemic character (aspects) of standards”?
Where does „positive feedback on the demand side“ result from?
What does incresing returns on adoption of one technology means?
Positive feedbacks on the demand (or supply side) result from network externalities
Increasing returns on adoption of one technology means that
the more individuals adopt a technology —>
the more experience is gained with that —>
the more the technology is improved (learning by using)
Product-element standards
Three negative aspects
Lock-In effects: Sunk custs of adopting standard technologies leads to higher barriers to switch to new standards
Dominance of suppliers controlling the standard
Radical new technologies tend to be more difficult and expensive to implement
Non-product standards
Reasons for negative economic effects
What does product selection decisions refer to?
Refer to choice between different technological solutions with (approximately) same function (‘close substitutes’)
Which two main scenarios can occur, when competing technologies are in the market?
Technological monopoly
Market sharing
What is the widespread view and Bassanini and Dosis view on the relation between increasing returns to adoption and lock-in effects?
Widespread view (Arthur 1989): IR lead to lock-in
Bassanini and Dosi (1999): IR are neither necessary nor sufficient to explain lock-in effects
Static approach: Technology-adoption game
Describe excess inertia
Users delay adopting a new technology
Economy is locked in with an inferior technology
New users have to bear the costs of innovating, because of positive externalities
Describe excess momentum
Consumer rush to adopt an inferior technology
Costs are beared by the users sticking to the old technology
Name important factors that affect the timing and frequency of adoption (dynamic approach)
Consumers’ degree of substitution and their network size
Technology growth rates and consumer population size
Compatibility of new and old technology
Left: Technology will not be adopted altough the technology growth rate is very high, because the technology levels are perfect complements. I.e., technology growth cannot be enjoyed by young consumers because the adoption of new technology is associated with a drop in the network size. The market is likely to be stuck in the old technology.
Right:
Left: Shows how consumers may benefit from the adoption of new technologies under perfect substitution even if old and new technologies are incompatible.
Right: Shows that new technologies is not adopted, because technology growth is not sufficiently high.
What are the effects of trade under mutual standard recognition?
What are the effects of trade under mutual non-recognition?
Effect of compatibility standards on international trade
Capture international network externalities or coordinating activities in a more efficient way
Embody information about consumer preferences in foreign markets
Sometimes incompatible standards are adopted intentionally as a market segmentation device with the aim to reduce competition and trade
Effect of safety standards on international trade
Safety standards are not designed with the purpose of acting as a protectionism device
—> can increase, decrease or leave trade unaffected depending on the effect of standards on
the relative cost of domestic and foreign producers
the level of competition
the consumers ́ willingness to pay (WTP) for safer products
Effect of environment-related standards on trade
involve product standards (when the negative externalities arise from the consumption of the product)
and process standards (when the negative externalities arise from the production of the product)
the impact of environmental standards on trade depends on the type of standards and whether it is applied only to domestic or also to foreign producers
Name two models that explain the adoption of competing technologies
Standard class of models
Bassanini and Dosi
Technological monopolies (TM) vs. Market sharing (Bassanini and Dosi, 1999)
In presence of competing technologies, emergence of TM depends on:
Nature of network effects w.r.t. degree of population heterogeneity
Sufficient heterogeneity might counterbalance increasing returns to adoption
—> Network effects only leads to TM if linearly increasing returns and small heterogeneity of agents
Unbounded IR diminishing slower at the margin
History: Distribution of populations characteristics and preferences might determine attainable states
Rate of turnover of basic technologies, because the market often changes before the market-share becomes stable
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