David Kiron

Strategic Behavior in Standard-Setting Organizations

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.

Government Intervention in Standardization: The Case of WAPI

Government bodies have been playing an active and frequently controversial role in many standards competitions in recent decades. The growing literature on standards by economists has largely neglected this role. This paper seeks to take an initial step in addressing this gap in the literature, by examining the experience of one current, and quite contentious, public effort to promote a standard: the Chinese efforts to promote a wireless networking standard and the ensuing interactions with the efforts to create a standard in Europe and the United States. We highlight several observations from this case, which are particularly striking when we contrast this with the experience of the 802.11 technology - which also facilitates wireless computer networking - developed in the West. First, the role of the public sector was quite different. The development of the 802.11 standards in the Institute of Electrical and Electronics Engineers was driven by major technology firms, both within the standardization body and through the non-profit Wi-Fi Alliance, which played a more aggressive promotional role. Much of the success of the firms in promoting technologies that they had sponsored seemed to be driven by their size and market power. The WAPI process, on the other hand, was almost completely driven by the public sector. There was no significant investment by any major technology firm. Unlike the WAPI process - where the initial technology did not mature in the market, but was almost immediately sponsored by the national standardization body - the 802.11 standard was developed over time. Various companies brought forward technologies that they had developed, and in many cases refined in the marketplace and sought to obtain super-majority approvals from the IEEE. The standardization process was transparent and open for all who wished to participate. By way of contrast, substantial ambiguities surrounded the WAPI program. For instance, the objectives of the national standardization body sponsoring the project was a mystery. Some speculated that there were two factions (with more and less pro-market views) that were fighting over how and whether WAPI should be made into an international standard. The treatment of intellectual property was quite different as well. The IEEE standardization included requirements that firms make their intellectual property available on reasonable and non-discriminatory terms. At the same time, at least some ambiguities appear to have surrounded the nature of the commitments to make intellectual property available: the IEEE required disclosure, but the terms of disclosure were not entirely clear. With WAPI, on the other hand, there were considerable ambiguities surrounding the technology, with no access to relevant intellectual property. The only way to build to the technology was to partner with one of 24 firms involved in the promulgating the standard, but the nature of these partnerships was unclear, and outside firms worried about revealing related intellectual property in exchange. The disparities in the strategies adopted by Western and Chinese governments correspond to the typologies developed in the theoretical literature. At the same time, the realities of the two cases raise a variety of questions that have not been explicitly considered by economists, such as the appropriate strategy in settings where less developed nations are competing with established countries. It is hard to conclude that either the bottom up approach of IEEE or the top-down national approach of China was necessarily superior: each may have been appropriate given the different circumstances of the nations.