The Economics of Standardization: A Guide for Non-Economics

Recently, economists have begun to analyze market issues raised by compatibility problems. In this paper I summarize, for non-economists, economists' recent thinking about standards. I describe several economic questions about standards, and say briefly how we economists think about them. Then I explain why standards-related problems may suggest some fundamental changes in how economists think about the economy's ability to satisfy people's wants. This matters to everyone, because economists, and their students who become politicians, often choose policy on the basis of general arguments, drawn from a sense about how “the economy” works rather than from specific analysis of a problem. So you should know how economists get that sense, and why it may not apply in the standards world.