Adoption of Standards under Uncertainty

Adoption of Standards under Uncertainty

By
Michael Ostrovsky, Michael Schwarz
RAND Journal of Economics.
2005, Vol. 36, Issue 4, Pages 816-832

The presence of noise in compliance times may have a critical impact on the selection of new technological standards. A technically superior standard is not necessarily viable because an arbitrarily small amount of noise may render coordination on that standard impossible. We introduce the concept of a firm's "support ratio," defined as a function that depends only on characteristics of that firm. We show that for sufficiently patient firms, the viability of a standard does not depend on the distribution of noise in compliance times. The criterion for the viability of a standard is that the sum of support ratios of all firms be smaller than one.