The role of standard‐setting organizations in deciding product quality and process innovation

Munirul Nabin, Pasquale Sgro () and Surjasama Lahiri

International Journal of Economic Theory, 2023, vol. 19, issue 4, 767-786

Abstract: We analyze the effect that the presence of a standard‐setting organization (SSO) has on firms' choices of product quality and costly research and development (R&D) investment when consumers face uncertainty regarding product standardization. We construct a theoretical model with competing firms and compare frameworks where: (i) an SSO is exogenously absent and (ii) an SSO is present. Our first finding is a negative relationship between firms' product‐quality choices and R&D investment. The presence of the SSO standardizes quality which can be profitable for firms. Finally, we find conditions where the presence of an SSO could lead to welfare enhancement.

Date: 2023
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