The Standardization Problem – An Economic Analysis of Standards in Information Systems

Peter Buxmann, Tim Weitzel, Falk v. Westarp, and Wolfgang König

1/01/2005
(Original Publish Date: 1999)

Choosing the right set of communication standards is fundamental in any kind of interaction, especially in the coordination of economic activities. This decision problem, generally referred to as the standardization problem, mainly results from interdependencies due to positive network effects. This paper provides an economic analysis of using standards in information systems. We introduce a decision model for solving the standardization problem, which can calculate the optimal assignment of standards to actors in any given communications network. The relevant model parameters representing the costs and benefits of standardization are derived. Furthermore, we discuss possibilities and limitations of using the decision model.