Compatibility Standards and the Market for Telecommunications Services

by Stanley Besen, Garth Saloner

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This paper analyzes the processes by which standards are produced in the telecommunications industry, focusing particularly on voluntary standards that are established cooperatively and de facto standards that are established by the market. It first considers the forces that determine which process will be used to determine a standard, and then examines cooperative standard-setting in practice. It describes how voluntary standards are set both in the United States and internationally. The paper surveys the burgeoning economic literature on noncooperative standard-setting to illuminate the determination of de facto standards. It then considers the effect of standards on competition and surveys some recent attempts by the Federal Communications Commission to prevent standards from being used anticompetitively. Finally, it analyzes two cases of standard-setting, Open Network Architectures and Integrated Services Digital Networks, in some detail.

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