Monopoly versus Competition in Setting Accounting Standards
29 Pages Posted: 20 Jul 2014 Last revised: 22 Jan 2015
Date Written: September 20, 2014
Financial accounting standards are set by organizations granted a significant degree of monopoly power by various governments. While there has been considerable debate on the merits of national (e.g., US FASB) versus international (IASB) monopolies, little attention has been paid to the merits of using competing standard setting organizations (SSOs) for setting accounting standards. We compare the standard setting processes of the FASB/IASB to the processes of four technology-oriented SSOs to assess the role of competition. We also provide a case study of monopoly and competitive standards in telephony. Both telephony and accounting yield some gains from coordination, and similar arguments are used (under the labels of comparability and consistency of accounting) in debates about granting a monopoly to their respective SSOs. Our results show that a group of volunteers competing with the government-sanctioned monopoly of International Telecommunications Union transformed the telephone industry. Thanks to this standards competition, we enjoy free video internet calling and massive cost savings. Implications for accounting standard setting are discussed.
Keywords: Coordination, quality, technology, telephony, network externalities, IETF, ITU-T, P2P networks, Skype, Google Talk
JEL Classification: D42, G38, M41
Suggested Citation: Suggested Citation