Choosing the rules for consensus standardization

Abstract

Consensus standardization often involves bargaining without side payments or substantive compromise, creating a war of attrition that selects through delay. We investigate the tradeoff between screening and delay when this process selects for socially valuable but privately observed quality. Immediate random choice may outperform the war of attrition, or vice versa. Allowing an uninformed neutral player to break deadlocks can improve on both mechanisms. Policies that reduce players' vested interest, and hence delays, can strengthen the ex ante incentive to improve proposals. JEL Codes: L15, C78, D71, D83. * We thank the National Science Foundation and the Berkeley Committee on Research (Farrell) and the UC Center for Information Technology Research in the Interest of Society (Simcoe) for research support. For helpful comments on a much earlier version, we thank seminar participants at Berkeley, Davis, UCLA, Santa Barbara, Lisbon, Barcelona, LSE, USC, Calgary, Vancouver, TPRC, Harvard, NBER, Aix-en-Provence, OECD, and Oxford; and especially James Dana, Glenn Ellison, Barry Nalebuff, Eric Rasmusen, Pierre Regibeau, Michael Whinston, and Charles Wilson, as well as the members of ANSI's X3 Strategic Planning Committee, especially its former Chairs, S.P.Oksala and C. Cargill, and Chris Simpson and Anthony Raeburn of the IEC, and Christian Favre of the ISO. Alerto Galasso, Matt Mitchell, Shane Greenstein and Victor Stango provided useful comments on a more recent version. Comments are welcome:

Repeated interaction in standard setting

“…Assume that if no standard is adopted, all players receive a payoff of zero in round . Like most of the literature (e.g., Bonatti & Rantakari, ; Farrell & Simcoe, ), we rule out side payments between participants.…”

“…Simcoe (2012) models standard setting as a complete-information stochastic bargaining game and shows that coordination delays increase with participants' private benefits from adopting a specific technology, for example, because they hold patents covering the technology. Farrell and Simcoe (2012) model standard setting as a war of attrition where selection occurs through delay, assuming that the quality of technologies is sponsors' private information. Bonatti and Rantakari (2016) instead allow for compromise and study how the rules of SSOs trade off inefficient polarization in technology contributors' proposed solutions against incentives to invest in project development.…”

Pawn to Save a Chariot, or Drawbridge Into the Fort? Firms' Disclosure During Standard Setting and Complementary Technologies Within Ecosystems

“…The firm with higher‐quality technology tends to “forum‐shop” for SSOs more “friendly” toward itself, so that it gets to provide less concessions (e.g., attractive rates to licensees) subsequent to standard formation (Chiao et al., ; Lerner & Tirole, ). Also, as the process could entail active negotiations between firms with competing technologies vying to be the standard, the firm has to consider its influence in the SSOs (Leiponen, ) and be mindful of potential delays and “war of attrition” before consensus is reached (Farrell & Simcoe, ).…”

“…In recent years, there is even a push toward royalty‐free licensing. Other costs to the disclosing firm include strategic gaming by rivals or delays (Farrell & Simcoe, ; Updegrove, ).…”

“…Past research along this inquiry usually starts by depicting, either explicitly or implicitly, situations where the necessary complementary technologies within the ecosystem are all owned by other firms (e.g., Adner & Kapoor, ), so that the focal firm's preoccupation is on coordinating with these other firms (Kapoor & Lee, ). Not surprisingly, the firm's concerns, brought up thus far in past research, are mostly about what happens to the firm's disclosed technology itself upon disclosure to SSOs, in terms of its subsequent value (Bekkers, Bondard, & Nuvolari, ; Rysman & Simcoe, ), its survival of the disclosure process, and licensing revenue (Farrell & Simcoe, ; Lerner & Tirole, ). Few have shed light on, or even taken into account, how other technologies that the firm owns may also be relevant considerations in the firm's participation in these forums.…”