Estimating the Costs of Standardization: Evidence from the Movie Industry

El Hadi Caoui

The Review of Economic Studies, 2023, vol. 90, issue 2, 597-633

Abstract: This article studies the decentralized adoption of a technology standard when network effects are present. If the new standard is incompatible with the current installed base, adoption may be inefficiently delayed. I quantify the magnitude of “excess inertia” in the switch of the movie distribution and exhibition industries from 35 mm film to digital. I specify and estimate a dynamic game of digital hardware adoption by theatres and digital movies supply by distributors. Counterfactual simulations establish that excess inertia reduces surplus byrelative to the first-best adoption path; network externalities explainof the surplus loss. Targeted adoption subsidies or a mandate on digital distribution help bridge this welfare gap.

Keywords: Dynamic games; Network effects; Technology adoption; Movie industry; C73; L15; O33; L82 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:oup:restud:v:90:y:2023:i:2:p:597-633.

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