ISBN: 3790800767
TITLE: Economics of Standards in Information Networks
AUTHOR: Weitzel
TOC:

1 Introduction 1
1.1 Standards in Information Systems 2
1.2 Motivation and research questions 3
1.3 Structure of the thesis 5
1.4 Methodology and definitions 7
1.4.1 Methodology 7
1.4.2 Standard semantics 7
1.4.3 Empirical data from Fortune 1,000 study 9
2 Standardization problems 11
2.1 A brief history of standardization 11
2.1.1 From DNA to railways 11
2.1.2 From production side to demand side economies of scale 12
2.2 Network effect theory as theoretical foundation 14
2.2.1 Basics 14
2.2.1.1 General findings of network effect theory 15
2.2.1.2 Related literature 17
2.2.2 Path dependency, lock-in and multiple equilibria 19
2.2.3 Instability ("tippy networks") 24
2.2.4 Excess inertia: The start-up problem 25
2.2.5 Excess momentum: Too much standardization 26
2.2.6 Internalizing network effects in sponsored networks 26
2.2.7 Pareto-inferior market results and monopolies 27
2.2.8 Laissez-faire vs. dirigisme 28
2.3 Reconsidering network effect theory 29
2.3.1 Network effects versus network externalities 32
2.3.2 Direct vs. indirect network effects 33
2.3.3 Inefficiency and market failure 35
2.3.4 Costs of network size 37
2.3.5 Homogeneous network effects 38
2.3.6 Confusion of centralized and decentralized decision making 39
2.3.7 Ambiguous empirical evidence 39
2.3.7.1 Keyboards: QWERTY vs. Dvorak's DSK 39
2.3.7.2 The battle for VCR standards: beta isn't always better 42
2.3.7.3 Nuclear power reactors 43
2.3.7.4 Automobiles: Gas vs. Gasoline 45
2.3.8 Normative Implications 46
2.3.9 Summary 47
3 A standardization framework 49
3.1 Modeling the standardization problem: A basic model 49
3.1.1 A standardization model for centrally coordinated networks 52
3.1.2 A standardization model for decentrally coordinated networks 54
3.2 Equilibria in standardization problems 57
3.2.1 Information 58
3.2.2 Basic games 58
3.2.3 Equilibria 59
3.2.4 Efficiency of equilibria 59
3.2.4.1 Pareto efficiency 59
3.2.4.2 Kaldor-Hicks efficiency 60
3.3 Standardization games 61
3.3.1 Standard standardization games 61
3.3.2 Static non-cooperative 2-player standardization games 64
3.3.3 Sequential non-cooperative 2-player standardization games 67
3.3.3.1 Complete, perfect information 67
3.3.3.2 Complete, imperfect information 70
3.3.3.3 Incomplete information 70
3.3.3.4 Bayes-Nash-Equilibria 72
3.3.4 Dynamic n-player standardization games 75
3.3.4.1 Incomplete, imperfect information 76
3.3.4.2 Incomplete, perfect information 76
4 A simulation model for the standardization problem 80
4.1 Simulation design 80
4.1.1 Decision functions 80
4.1.2 Simulation parameters and pattern 82
4.2 The basic standardization problem 85
4.2.1 The single-period basic standardization problem 85
4.2.1.1 The standardization gap 85
4.2.1.2 Stability of the standardization gap 88
4.2.2 The multi-period basic standardization problem 91
4.2.2.1 The standardization gap 91
4.2.2.2 Single standard implementation vs. continuous license costs 94
4.2.3 Sequential choice 96
4.2.4 Individual consequences 98
4.2.4.1 Individual gains and losses 98
4.2.4.2 Wrong decisions 100
4.2.5 Agent size and standardization time 102
4.2.5.1 Stationary state period and agent size 102
4.2.5.2 Stationary state period and network size 105
4.2.6 Variation of network structure 105
4.2.6.1 Errors in different topologies 109
4.2.6.2 Standardization costs and network density 110
4.2.6.3 Summary 112
4.2.7 Installed base effects 113
4.2.8 Summary of multi-period one standard problems 117
4.3 The extended standardization model 117
4.3.1 The standardization gap and the equilibrium process 119
4.3.1.1 Simultaneous decisions, single choice 119
4.3.1.2 An adapted Herfindahl index 121
4.3.1.3 Simultaneous choice with reversible decisions 124
4.3.2 Five diffusion patterns 127
4.3.2.1 No standardization 127
4.3.2.2 Mixed solution 127
4.3.2.3 Monopoly 127
4.3.2.4 Oligopoly 128
4.3.2.5 Dynamic equilibrium 128
4.3.2.6 Comparing the diffusion paths 128
4.3.2.7 Summary 132
4.3.3 Sequential choice 132
4.3.4 Individual consequences 135
4.3.5 Agent size 138
4.3.6 Variations of network structure 139
4.3.7 Installed base effects 144
4.4 A different decentralized anticipation calculus 151
4.5 Adapting the diffusion model 157
4.5.1 From standardization to diffusion 157
4.5.1.1 The diffusion model 157
4.5.1.2 An integration 159
4.5.1.3 Further research 162
5 Solution mechanisms and empirical data 164
5.1 Empirical data for the standardization problem 165
5.1.1 Standardization problems in corporate networks 165
5.1.2 The importance of network effects 167
5.1.3 Diffusion of EDI-Standards 168
5.1.4 EDI data: costs and benefits 171
5.1.4.1 Empirical EDI benefits in the literature 172
5.1.4.2 Empirical EDI costs in the literature 173
5.1.5 EDI data from large enterprises 174
5.1.6 EDI data from SMEs 176
5.1.6.1 Results of the retailers survey 177
5.1.6.2 Results from the producers and wholesalers survey 180
5.1.7 MIS managers opinion on general standardization issues 183
5.2 Closing the standardization gap 184
5.2.1 Solution designs for standardization problems 184
5.2.2 Problems of centralized coordination 185
5.2.2.1 Data problem 186
5.2.2.2 Complexity problem 186
5.2.2.3 Implementation problem 188
5.2.3 Excursion: A word on centralization and decentralization 188
5.3 The implementation problem 191
5.3.1 A case of X.500 Directory Services 192
5.3.1.1 Directory Services 193
5.3.1.2 Empirical data 194
5.3.1.3 Profitability analysis 196
5.3.2 A network ROI 203
5.3.2.1 A two player solution 203
5.3.2.2 An n-player solution 206
5.3.3 A network ROI for a virtual principal 207
5.3.4 Problems associated with the ROI 209
5.4 The data problem 210
5.4.1 An adapted Groves mechanism for the decentralized standardization mode1 211
5.4.1.1 The Groves mechanism 211
5.4.1.2 A Groves examp1e 212
5.4.1.3 A Groves mechanism for decentralized standardization problems 213
5.4.1.4 Example of dominant strategies for the adapted Groves mechanism 214
5.4.1.5 Summary 220
5.4.2 Problems associated with the Groves mechanism 220
5.5 A bidding mechanism 221
5.5.1 Two examples 223
5.5.2 A comparison between the bidding mechanism and centralized coordination 226
5.6 Managerial and policy implications 229
5.6.1 Some general findings 230
5.6.2 Networks as a competitive advantage 231
5.6.3 Committees and consortia 232
5.6.4 Asymmetric network costs and gains 233
5.6.5 Infrastructure subsidies and SME integration 234
6 Theoretical implications: towards an interdisciplinary network theory 236
6.1 General Drawbacks of the neo-classical paradigm 236
6.1.1 Absence of Externalities 237
6.1.2 Complete rationality of the homo oeconomicus 237
6.1.3 Exclusion principle 238
6.1.4 Consumption paradigm 238
6.1.5 Separation of consumers and producers 239
6.1.6 Divisibility of resources 239
6.1.7 Concave Utility Functions / no complementarities 239
6.1.8 Absence of transaction costs 239
6.2 Towards an interdisciplinary theory of network effects 240
6.3 Required modeling power of an interdisciplinary theory of network effects 243
6.3.1 Modeling of knowledge and uncertainty / bounded rationality 243
6.3.2 Evolutionary System Dynamics 243
6.3.3 Emergence of system components and links 244
6.3.4 Abolishment of convexity and divisibility assumptions 244
6.3.5 Economics of Intermediation 244
7 Conclusions and further research 245
7.1 Summary of the findings 245
7.2 Further research 248
Variables and symbols 253
List of Equations 257
List of Figures 260
List of Tables 265
References 268
END
