Abstract

A widespread “pro-standards view” holds that compatibility standards and modularity are beneficial but are under-supplied by imperfect markets. The author stresses that this view is not unambiguously proven by economic logic, but tentatively concludes that it is more right than wrong, especially where it affects horizontal competition.

Introduction

Standards mavens often think that compatible competition is more competitive, more efficient, and more salubrious than incompatible competition; and they worry that private interests do not reliably reflect these social advantages. Such a view suggests that policy should seek compatibility and should guard against sabotage by special interests that gain from incompatibility.

Economists know that this pro-standards view (PSV) is not always right: It depends. Yet, stressing “on the one hand versus on the other hand” may give policymakers the wrong idea. As a step toward averting that problem, I undertake the uncomfortable project of going beyond “it depends” – even though it does. At a rigorous level, any such attempt must fail, but if I push myself to decide anyway, I make the judgment call that policy probably should thoughtfully encourage compatibility, especially in horizontal contexts. The PSV channels the spirit of much sound economic analysis: The standards mavens are more right than wrong.

Outside the horizontal context, the key question is, How does competition deal with complementarities? Ambivalence on that question infests telecommunications policy and a wide swath of antitrust, including tying, aftermarket competition, essential facilities, intrabrand competition, and bundling.