Standard-Creating Coalitions: Open vs. Proprietary Standards

Abstract

This paper studies the impact of entrepreneurial decisions regarding standard creation in an oligopolistic market with cooperative R&D investments. Our game-theoretic analysis shows that if standards are open and only multi-standard equilibria are allowed, it is impossible to attain a stable multi-standard equilibrium. However, if standards are proprietary, firms can reach two stable multi-standard equilibria. These stable equilibria imply the creation of two proprietary standards: symmetric in one equilibrium and asymmetric in the other, where the asymmetric equilibrium only exists when the innovating firms are strongly efficient in R&D.

Keywords: Standardization, R&D, Coalition Formation, Nash Equilibrium

JEL Classification: C72, D21, O31