Switching costs and the choice of a standard setting process

This paper studies the link between new technologies with network features and the organization of standardization processes. Compatibility standards for network technologies create positive network externalities for users. Standard setting is, however, a costly process. There are organizational coordination costs to consider. Timing also plays a role. If firms start a new service before there is a standard, they face switching costs when switching to the newly standardized technology. If they wait with market entry till a standard is developed, they incur waiting costs. These switching costs depend, among other things, on the technology used. A higher degree of modularity tends to reduce technological switching costs. This has a strong effect on how firms will set an industry standard