Standardization Policy and International Trade

Neil Gandal, Tel Aviv University, and Oz Shy, University of Haifa and Stockholm School of Economics

1/22/2008
(Original Publish Date: 10/16/2000)

We analyze governments' incentives to recognize foreign standards when there are potentially both network effects and conversion costs. When government policy is lim- ited to either recognizing all foreign standards or not recognizing any foreign standard, recognition is always the outcome. We then consider a setting in which countries can form standardization unions. When conversion costs are relatively large, two countries can increase their welfare by forming a standardization union which does not recognize the standard of the third (nonmember) country. When network effects are significant, all countries mutually recognize all standards and have no incentives to form standardization unions.