Switching Costs and Abstract Compatibility Standards: Are Vertical Standards as Vulnerable as Physical Products?

Research shows vendors manipulate open standards for physical products such as routers and switches to introduce positive switching costs. This article explores the possibility of manipulating vertical standards, purely abstract compatibility standards based on the eXtensible Markup Language (XML). Vertical standards use XML to formalize and codify business processes and data formats unique to specific industries. Manipulating vertical standards does not optimize or enhance proprietary hardware capabilities since they are not embedded in physical products, and any manipulation is easily detected and quite correctable, so it is unclear whether positive switching costs can be introduced by any vendor. This paper describes why vertical standards are not immune to manipulation, and explores circumstances which may make the manipulation of purely abstract compatibility standards possible. A series of testable propositions are presented, and potential evidence to signal the introduction of positive switching costs is discussed. Further research in this area is discussed.

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