Economics of Standards in Information Networks

Abstract

1 Introduction.- 1.1 Standards in Information Systems.- 1.2 Motivation and research questions.- 1.3 Structure of the thesis.- 1.4 Methodology and definitions.- 1.4.1 Methodology.- 1.4.2 Standard semantics.- 1.4.3 Empirical data from Fortune 1,000 study.- 2 Standardization problems.- 2.1 A brief history of standardization.- 2.1.1 From DNA to railways.- 2.1.2 From production side to demand side economies of scale.- 2.2 Network effect theory as theoretical foundation.- 2.2.1 Basics.- 2.2.1.1 General findings of network effect theory.- 2.2.1.2 Related literature.- 2.2.2 Path dependency, lock-in and multiple equilibria.- 2.2.3 Instability (tippy networks).- 2.2.4 Excess inertia: The start-up problem.- 2.2.5 Excess momentum: Too much standardization.- 2.2.6 Internalizing network effects in sponsored networks.- 2.2.7 Pareto-inferior market results and monopolies.- 2.2.8 Laissez-faire vs. dirigisme.- 2.3 Reconsidering network effect theory.- 2.3.1 Network effects versus network externalities.- 2.3.2 Direct vs. indirect network effects.- 2.3.3 Inefficiency and market failure.- 2.3.4 Costs of network size.- 2.3.5 Homogeneous network effects.- 2.3.6 Confusion of centralized and decentralized decision making.- 2.3.7 Ambiguous empirical evidence.- 2.3.7.1 Keyboards: QWERTY vs. Dvorak's DSK.- 2.3.7.2 The battle for VCR standards: beta isn't always better.- 2.3.7.3 Nuclear power reactors.- 2.3.7.4 Automobiles: Gas vs. Gasoline.- 2.3.8 Normative Implications.- 2.3.9 Summary.- 3 A standardization framework.- 3.1 Modeling the standardization problem: A basic model.- 3.1.1 A standardization model for centrally coordinated networks.- 3.1.2 A standardization model for decentrally coordinated networks.- 3.2 Equilibria in standardization problems.- 3.2.1 Information.- 3.2.2 Basic games.- 3.2.3 Equilibria.- 3.2.4 Efficiency of equilibria.- 3.2.4.1 Pareto efficiency.- 3.2.4.2 Kaldor-Hicks efficiency.- 3.3 Standardization games.- 3.3.1 Standard standardization games.- 3.3.2 Static non-cooperative 2-player standardization games.- 3.3.3 Sequential non-cooperative 2-player standardization games.- 3.3.3.1 Complete, perfect information.- 3.3.3.2 Complete, imperfect information.- 3.3.3.3 Incomplete information.- 3.3.3.4 Bayes-Nash-Equilibria.- 3.3.4 Dynamic n-player standardization games.- 3.3.4.1 Incomplete, imperfect information.- 3.3.4.2 Incomplete, perfect information.- 4 A simulation model for the standardization problem.- 4.1 Simulation design.- 4.1.1 Decision functions.- 4.1.2 Simulation parameters and pattern.- 4.2 The basic standardization problem.- 4.2.1 The single-period basic standardization problem.- 4.2.1.1 The standardization gap.- 4.2.1.2 Stability of the standardization gap.- 4.2.2 The multi-period basic standardization problem.- 4.2.2.1 The standardization gap.- 4.2.2.2 Single standard implementation vs. continuous license costs.- 4.2.3 Sequential choice.- 4.2.4 Individual consequences.- 4.2.4.1 Individual gains and losses.- 4.2.4.2 Wrong decisions.- 4.2.5 Agent size and standardization time.- 4.2.5.1 Stationary state period and agent size.- 4.2.5.2 Stationary state period and network size.- 4.2.6 Variation of network structure.- 4.2.6.1 Errors in different topologies.- 4.2.6.2 Standardization costs and network density.- 4.2.6.3 Summary.- 4.2.7 Installed base effects.- 4.2.8 Summary of multi-period one standard problems.- 4.3 The extended standardization model.- 4.3.1 The standardization gap and the equilibrium process.- 4.3.1.1 Simultaneous decisions, single choice.- 4.3.1.2 An adapted Herfindahl index.- 4.3.1.3 Simultaneous choice with reversible decisions.- 4.3.2 Five diffusion patterns.- 4.3.2.1 No standardization.- 4.3.2.2 Mixed solution.- 4.3.2.3 Monopoly.- 4.3.2.4 Oligopoly.- 4.3.2.5 Dynamic equilibrium.- 4.3.2.6 Comparing the diffusion paths.- 4.3.2.7 Summary.- 4.3.3 Sequential choice.- 4.3.4 Individual consequences.- 4.3.5 Agent size.- 4.3.6 Variations of network structure.- 4.3.7 Installed base effects.- 4.4 A different decentralized anticipation calculus.- 4.5 Adapting the diffusion model.- 4.5.1 From standardization to diffusion.- 4.5.1.1 The diffusion model.- 4.5.1.2 An integration.- 4.5.1.3 Further research.- 5 Solution mechanisms and empirical data.- 5.1 Empirical data for the standardization problem.- 5.1.1 Standardization problems in corporate networks.- 5.1.2 The importance of network effects.- 5.1.3 Diffusion of EDI-Standards.- 5.1.4 EDI data: costs and benefits.- 5.1.4.1 Empirical EDI benefits in the literature.- 5.1.4.2 Empirical EDI costs in the literature.- 5.1.5 EDI data from large enterprises.- 5.1.6 EDI data from SMEs.- 5.1.6.1 Results of the retailers survey.- 5.1.6.2 Results from the producers and wholesalers survey.- 5.1.7 MIS managers opinion on general standardization issues.- 5.2 Closing the standardization gap.- 5.2.1 Solution designs for standardization problems.- 5.2.2 Problems of centralized coordination.- 5.2.2.1 Data problem.- 5.2.2.2 Complexity problem.- 5.2.2.3 Implementation problem.- 5.2.3 Excursion: A word on centralization and decentralization.- 5.3 The implementation problem.- 5.3.1 A case of X.500 Directory Services.- 5.3.1.1 Directory Services.- 5.3.1.2 Empirical data.- 5.3.1.3 Profitability analysis.- 5.3.2 A network ROI.- 5.3.2.1 A two player solution.- 5.3.2.2 An n-player solution.- 5.3.3 A network ROI for a virtual principal.- 5.3.4 Problems associated with the ROI.- 5.4 The data problem.- 5.4.1 An adapted Groves mechanism for the decentralized standardization model.- 5.4.1.1 The Groves mechanism.- 5.4.1.2 A Groves example.- 5.4.1.3 A Groves mechanism for decentralized standardization problems.- 5.4.1.4 Example of dominant strategies for the adapted Groves mechanism.- 5.4.1.5 Summary.- 5.4.2 Problems associated with the Groves mechanism.- 5.5 A bidding mechanism.- 5.5.1 Two examples.- 5.5.2 A comparison between the bidding mechanism and centralized coordination.- 5.6 Managerial and policy implications.- 5.6.1 Some general findings.- 5.6.2 Networks as a competitive advantage.- 5.6.3 Committees and consortia.- 5.6.4 Asymmetric network costs and gains.- 5.6.5 Infrastructure subsidies and SME integration.- 6 Theoretical implications: towards an interdisciplinary network theory.- 6.1 General drawbacks of the neo-classical paradigm.- 6.1.1 Absence of externalities.- 6.1.2 Complete rationality of the homo oeconomicus.- 6.1.3 Exclusion principle.- 6.1.4 Consumption paradigm.- 6.1.5 Separation of consumers and producers.- 6.1.6 Divisibility of resources.- 6.1.7 Concave utility functions / no complementarities.- 6.1.8 Absence of transaction costs.- 6.2 Towards an interdisciplinary theory of network effects.- 6.3 Required modeling power of an interdisciplinary theory of network effects.- 6.3.1 Modeling of knowledge and uncertainty/bounded rationality.- 6.3.2 Evolutionary system dynamics.- 6.3.3 Emergence of system components and links.- 6.3.4 Abolishment of convexity and divisibility assumptions.- 6.3.5 Economics of intermediation.- 7 Conclusions and further research.- 7.1 Summary of the findings.- 7.2 Further research.- Variables and symbols.- List of equations.- List of figures.- List of tables.- References.

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