Standardization, Compatibility, and Innovation

Joseph Farrell, and Garth Saloner

1/01/2005
(Original Publish Date: 1985)

There are often benefits to consumers and to firms from standardization of a product. We examine whether these standardization benefits can trap an industry in an obsolete or inferior standard when there is a better alternative available. With complete information and identical preferences among firms the answer is no; but when information is incomplete this excess inertia can occur. We also discuss the extent to which the problem can be overcome by communication.