Header image of the Tilburg Law and Economics Center (TILEC)

Tilburg Law and Economics Center

TILEC supports and stimulates academic research on the governance of economic activity. It fosters academically path breaking and practically relevant research and aims to be a leading center worldwide.

TILEC Work in Progress: Clemens Fiedler

Standards and the Common Good: How Competition Fosters Cooperation
10:45-11:45, T 50A

We consider the problem of competing firms contributing to the development of a common standard by analyzing the two core functions of standards. First, standards are set, i.e. they harmonize product characteristics and make products more like each other. Second, standards are developed, i.e. they are a solution to a technical problem that firms jointly solve.

To analyze this problem, we develop a model of standard setting, where firms are separated into standards. Within a standard, firms can share their research and development and thus avoid costly duplication. Additionally, firms within the standard also face a higher competition from each other relative to competition from firms outside of the standard.

By differentiating between both roles of a standard we show that competition has an inverted U-shaped effect on standard investments. For high levels of competition, a reduction raises firms’ investment. For already low levels a further reduction lowers the incentives of firms. Furthermore, by disentangling competition within and outside of the standard we illustrate how both aspects of a standard conflict with each other. Thus, a standard that leads to a high degree of similarity reduces firms’ incentives to invest.

Consequently, governmental interventions that impact the level of competition with the goal of raising R&D investments need to be carefully implemented in the presence of standards. This is even more so true if society has a preference over one of the two goals of a standard.

When: 07 November 2018 10:45

End date: 07 November 2018 11:45