Standards Competition in the Presence of Digital Conversion Technology: An Empirical Analysis of the Flash Memory Card Market

Abstract

Both theoretical and empirical evidence suggest that in markets with standards competition, strong network effects can make the strong grow stronger and, in some circumstances, even "tip" the market towards a single, winner-take-all standard. We theorize that in the presence of low cost conversion technologies and digital content, the tendency towards market dominance can be lessened to the point where multiple incompatible standards are viable. Our hypotheses are empirically examined in the context of the flash memory card market where both network effects and high quality conversion are present. The results show that the availability of digital converters reduces the price premium of the leading flash card formats more than of the minority formats. Therefore, producers of the non-dominant standards can be better off with the provision of conversion technology as this technology neutralizes the impact of network effects that would have otherwise been more potent. We discuss both the social and private implications of our findings.

Standards as Hybrids

“…As the reach of informational infrastructures and dependencies they create become increasingly pronounced (Castells, 1996;Edwards, 2003) so does the realization that the knowledge of standards we derived from the lessons of infrastructural development of the industrial age may be partial or altogether irrelevant in explaining the role of standards in the development of contemporary informational infrastructures (Liu et al, 2008, West & Fomin, 2011.…”

“…Using Bauman's (2004) concept of liquid modernity, I argue that standards to fulfill on their function of enabling interoperability in the global informational infrastructure often become hybrids linking together different scales of time, space, and social organization. My work is motivated by the need for novel theorizing on standards and standardization, as suggested by an increasing amount of research which questions and/or refutes the common knowledge of the industrial age (Gill & Miller, 2002;Liu et al, 2008;West & Fomin, 2011).…”

Acquisitions, Entry and Innovation in Network Industries

“…Empirical evidence suggests that leveling takes place: Liu et al (2008) document that increasing compatibility in the memory card market reduces the effect of installed bases on price premiums while larger installed bases increase price premiums. In other words, there appear to be network effects in the memory card market but the price premiums they allow are reduced when the degree of compatibility increases.…”

Compatibility and Proprietary Standards: The Impact of Conversion Technologies in IT Markets with Network Effects

“…With alleviated price competition, the possibility of blockading the transition to a new technology, which is identified in Choi (1996), is less likely to emerge in our model. This finding is best illustrated in the flash memory card market where in the presence of the conversion technologies, new entrant formats were able to survive the initial competition and in some cases outperform the incumbent formats (Liu et al 2007).…”