Technical standard competition: An ecosystem-view analysis based on stochastic evolutionary game theory

Abstract

This research addressed two key questions: Which one of the competing technologies can become the de facto technical standard? Under what conditions might this standard arise? Previous studies either ignored the role of complementary suppliers or adopted perfect rationality assumptions, resulting in limited explanatory powers to reality. This study constructs a technology (hardware) selection model involving software vendors and consumers from an ecosystem view. Applying the analysis method of stochastic evolutionary game, three interesting results were found. First, a single technology may become the de facto technical standard, or multiple technologies may coexist. Which equilibrium will emerge depends on the initial state of the game, the performance-price ratio of the two technologies, and the complementarity between hardware and software. Second, it is easier for hardware manufacturers to achieve market monopoly by adopting the strategy of subsidizing software vendors than by improving their own performance-price ratio. Finally, the equilibrium of coexistence may occur in industries where hardware and software are not strongly complementary to each other, and where the development of software is poor. The core mechanism that leads to the coexistence is the inconsistent decision-making pace between consumers and software vendors.