Standard Setting in Markets: The Browser War

Timothy Bresnahan, Landau Professor in Technology in the Economy at Stanford University, and Pai-Ling Yin, Assistant Professor of Strategy at Harvard Business School

3/13/2008
(Original Publish Date: 5/1/2004)

We study de facto standard setting in markets with network effects. We closely examine the “browser war,” in which Netscape Navigator at first appeared likely to be a de facto standard, but Microsoft Internet Explorer eventually became the standard. This reversal is a puzzle we seek to explain. We draw on the theory of standard setting, especially on the positive economics predictions about market outcomes, such as a tendency to tip and a tendency toward inertia. The basic insights of standard setting theory are borne out in the browser war. In addition, linking standard setting logic to an analysis of market conditions, such as the rate of growth of demand and the distribution system, leads to a complete positive theory of standards setting. This complete theory explains the otherwise surprising reversal.