Strategic Behavior in Standard-Setting Organizations

Abstract

This paper seeks to better understand the competitive behavior of firms in standard-setting organizations by examining two case studies. We examine the development of mobile Internet standards by the Institute of Electrical and Electronics Engineers (IEEE); and the development of DSL standards. The case studies highlight that standard-setting bodies play critical roles in these industries. Because innovations are typically not promulgated by a single firm, but rather draw together technologies developed in multiple firms, the coordination role played by these organizations is critical. And certainly in some cases, particularly where parties commit in advance to a formal process (such as the xDSL one), the standardization process can lead to a dispassionate selection of a superior technology as a standard.

But as the IEEE 802.11 case suggests, the situation is often more complex. For in many cases, the selection of a technological standard has very substantial economic implications for the firms participating in the process. As a result, the standardization process can become side-tracked as warring factions seek to promote their own agenda. The process can be very much delayed as a result. Rules of standard-setting bodies that were originally intended to insure a fair process can be manipulated by firms to promote their own agenda or even to delay the project indefinitely. As a result, firms may be tempted to by-pass formal standards development organizations, and instead reach a private agreement with like-minded peers.

Keywords: Standardization, innovation, technology

JEL Classification: O32, L96