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Standards and Innovation: Technology vs. Installed Base

Reiko Aoki and Yasuhiro Arai

No 601, CIS Discussion paper series from Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University

Abstract: We present a framework to examine how a standard evolves when a standard consortium or a firm (incumbent) innovates either to improve the standard or to strengthen installed base which increases switching cost. Both investments make it more difficult for another firm (entrant) to introduce a standard, also by investing in technology improvement. We show that incumbent's strategy will differ according to if the technology is in infancy or it has matured. The incumbent will deter entry when the technology is in infancy and return from investment is high. In this case ability to raise switching cost is important since entrant also has low cost. If the technology is mature and return to investment is low, then incumbent will choose to allow entry and there is co-existence of two standards. Replacement of standard by the entrant never occurs in equilibrium.

Keywords: standards; innovation; installed base (search for similar items in EconPapers)
Pages: 36 pages
Date: 2013-03
New Economics Papers: this item is included in nep-com, nep-cwa, nep-ino, nep-knm and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:hit:cisdps:601

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