Standards, dominant designs and preferential acquisition of complementary assets through slight information advantages

Abstract

This paper discusses how firms can use slight information advantages to obtain preferential access to complementary assets and create multi-level dominant designs. It does this by using an analysis of several cellular phone industries and the literature on standards and dominant designs. In the most prominent case, the leading Japanese cellular service provider (NTT DoCoMo) offered preferential information about the “open” Japanese digital phone standard in return for preferential access to the lightest phones from four phone suppliers. These four phone suppliers used the preferential access to this information to obtain preferential cooperation from parts suppliers and to make better design tradeoffs between parts than the other phone suppliers. These superior design tradeoffs enabled the DoCoMo suppliers to create various dominant designs within the Personal Digital Cellular (PDC) standard. The creation of these dominant designs forced other phone and part manufacturers to change their design strategies and copy the designs used by the DoCoMo phone and part suppliers. The result is that DoCoMo and its four phone suppliers have substantially reversed the slides in their market shares. By comparing this case with several other cellular phone industries in which different modes of competition exist, the paper discusses how market conditions determine the way in which standards and dominant designs emerge.