Abstract
A Unified Economic Model of Standard Diffusion: The Impact of Standardization Cost, Network Effects, and Network Topology
Tim Weitzel, Daniel Beimborn, and Wolfgang König
Special Issue on Standards
This paper is motivated by the following question: What drives the diffusion of a communication standard and what diffusion results can we expect? Past literature provides many instructive but mostly unrelated answers. Findings relate to startup problems, penguin effects, and tendencies toward monopoly, but substantial problems in applying the models to concrete standardization problems reveal that the dynamics are probably more complex. A single standard attracting a critical number of users does not ultimately guarantee adoption by a network. Not all diffusion results are complete nor do they provide standardization.
The conditions of specific diffusion behaviors are addressed by developing a formal standardization model that captures all fragmented phenomena in a unified approach. Drawing upon findings from other research, we incorporate the structure of the underlying user network as an important determinant for diffusion behaviors. The approach allows us to disclose varying conditions that generate frequently observed standardization behaviors as special parameter constellations of the model. Using equilibrium analysis and computer simulations, we identify a standardization gap that reveals the magnitude of available standardization gains for individuals and the network as a whole. The analysis shows that network topology and density have a strong impact on diffusion of standards and that the tendency toward monopoly is far less common than thought. We also report how the model can be used to solve corporate standardization problems.
Keywords: Standardization, diffusion, network effects, equilibrium, non-cooperative games, topology, computational analysis, penguin effect