THE DIFFUSION OF COMPETING TECHNOLOGY STANDARDS.

Abstract

Viewing consumer adopters and business adopters as the two sides of the market for standards, we develop two dynamic models to study the competition and diffusion of technology standards under the theoretical framework of 'two-sided market'. The two sides interact with each other through the standards and the benefit of adopting a particular standard for agents on one side depends on the number of adopters on the other side. We develop a linear dynamic systems model and a non-linear dynamic optimization model to study the diffusion of technology standards when competing standards exist in the market. Both models indicate that over the long-run, one standard will dominate the market as long as each individual agent tends to adopt only one standard. As the tendency for adopting multiple standards increases, the possibility for two standards to co-exist in the long-run also increases. The findings indicate that the steady-state market share of competing technology standards can be very different depending on adopters' choice of 'multi-homing' or 'single-homing'.