Shane Greenstein

The Economics Of Compatibility Standards: An Introduction To Recent Research 1

This paper surveys the contributions that economists have made to understanding standards-setting processes and their consequences for industry structure and economic welfare. Standardization processes of four kinds are examined, namely: (1) market competition involving products embodying unsponsored standards, (2) market competition among sponsored (proprietary) standards, (3) agreements within voluntary standards-writing organizations, a18d (4) direct governmental promulgation. The major trajectories along which research has been moving are described and related to both the positive and the normative issues concerning compatibility standards that remain to be studied.

The Product Life Cycle in the Commercial Mainframe Computer Market, 1968-1982

We investigate product life cycles in the commercial mainframe computer market. We use hazard models with time-varying covariates to estimate the probability of product exit and Poisson models to estimate the probability of introduction. We measure the importance of different aspects of market structure, such as the degree of competitiveness, cannibalization, vintage, product niche, and firm effects. We find evidence of a relationship between the determinants of product exit and product entry.

Understanding the Supply Decisions of Nonprofits: Modelling the Location of Private Schools

This research examines the location choice of California private schools in 1978-1979. We make use of some of the recent developments in the analysis of count data. The results indicate that the character of the population and the public schools influence location decisions. Private schools with different religious affiliations respond differently to population characteristics, which we argue is evidence of differences in the objectives of these different types of private schools. Location decisions of all types of private schools depend most on characteristics of the community in which a school locates, with attributes of surrounding communities having small effects on the location decision.

Standards and public policy

Technological standards are a cornerstone of the modern information economy, affecting firm strategy, market performance and, by extension, economic growth. While there is general agreement that swift movement to superior technological standards is a worthwhile goal, there is much less agreement on the central policy questions: do markets choose efficient standards? How do standards organizations affect the development of standards? And finally, what constitutes appropriate public policy toward standards? In this volume, leading researchers in public policy on standards, including both academics and industry experts, focus on these key questions. Given the dearth of applied work on standards and public policy, this volume significantly advances the frontier of knowledge in this critical but understudied area. It will be essential reading for academic and industrial researchers as well as policymakers.

The Role of Differentiation Strategy in Local Telecommunication Entry and Market Evolution: 1999-2002

We examine the role of differentiation among competitive local exchange carriers (CLECs) in nearly 1,200 U.S. cities in 1999 and 2002, before and after a valuation crash affecting communications firms. We test and reject the null hypothesis of homogeneous competitors. We also find strong evidence that differentiated CLECs account for both potential market demand and the business strategies of competitors when making their entry decisions. Finally, product heterogeneity in markets in 1999 helps predict how the structure of markets evolved through 2002. We conclude that the policy debate for local telecommunications regulation should account for differentiated behavior.

Geographic location and the diffusion of Internet technology

This study examines the sources of geographic variance in commercial Internet use. Until now, two opposing views have been argued on the relationship between Internet technology and economic agglomeration. One view, which we term global village theory, asserts that Internet technology helps lower communication costs and break down geographic boundaries between firms. The other view, labeled urban density theory, argues that the Internet follows a traditional pattern of diffusion - diffusing first through urban areas with complementary technical and knowledge resources that lower the costs of investing in new frontier technology. We provide a third view, industry composition theory, that asserts that demand for the Internet is increasing in location size because of the concentration of information-intensive firms in urban areas. We offer hard evidence on factors influencing the dispersion of Internet technology to businesses. We find no evidence for urban density theory in the diffusion of basic access and participation in the Internet network. We do find some evidence supporting global village theory for diffusion along this dimension. We also find that the pattern of adoption of frontier Internet technologies supports urban density theory not global village theory. Last, we show that business use of the Internet is significantly shaped by the prior geographic distribution of industry.

Invisible Hands and Visible Advisors: An Economic Interpretation of Standardization.

This article provides an outline of the economic factors influencing the development of standards. Standards may develop through market mechanisms, organizations that combine market participants and government guidance. Each of these mechanisms may produce desirable outcomes or distort them, depending on market structure, chance historical events, and the costs of technical alternatives. Many economically desirable and distorted outcomes are possible in theory, while in practice, it is often difficult to know what is a good or bad economic choice.

Market structure, innovation and vertical product differentiation

Abstract We reassess Arrows (1962) [Economic Welfare and the Allocation of Resources for Invention, in NBER, The Rate and Direction of Innovative Activity (Princeton University Press, Princeton NJ)] results concerning the effect of market structure on the returns from process innovation. Here we consider product innovations that are vertically differentiated from older products, in the sense of Shaked and Sutton (1982) (Relaxing Price Competition through Product Differentiation, Review of Economic Studies 49, 3–13.), Shaked and Sutton (1983) (Natural Oligopolies, Econometrica 51, 1469–1484.). Competition and monopoly in the old product market provide identical returns to innovation when (i) the monopolist is protected from new product entry, and (ii) innovation is non-drastic, in the sense that the monopolist supplies positive quantities of both old and new products. If the monopolist can be threatened with entry, monopoly provides strictly greater incentives. Welfare may be greater under monopoly when innovation is valuable.

The economic contribution of information technology: Towards comparative and user studies

Abstract. By what process does technical change in information technology (IT) increase economic welfare? How does this process result in increases in welfare at different rates in different countries and regions? This paper considers existing literature on measuring the economic benefits from information technology, emphasizing comparative issues and user studies. Following Bresnahan and Trajtenberg (1995), we call the invention associated with customizing the technological frontier to the unique needs of users in particular regions “co-invention”, placing emphasis on understanding how its determinants vary across users in different regions. We develop a framework for understanding the processes behind value-creation, demand-side heterogeneity and co-inventive activity. Then we discuss why these processes make measuring the welfare benefits from advances in information technology particularly difficult. We highlight the metrics currently available for measuring the economic pay-out of the IT revolution and identify which of these vary meaningfully in a comparative regional context. Finally, we finish with observations about further areas of research.

Understanding the Inputs into Innovation: Do Cities Substitute for Internal Firm Resources?

We examine whether there is a trade-off between employing internal (firm) resources and purchased external (local) resources in process innovation. We draw on a rich dataset of Internet investments by 86,879 US establishments to examine decisions to invest in advanced Internet technology. We show that the marginal contribution of internal resources is greater outside of a major urban area than inside one. Agglomeration is less important for firms with highly capable IT workers. When firms invest in innovative processes they act as if resources available in cities are partial substitutes for both establishment-level and firm-level internal resources.