RATIONAL INCOMPATIBILITY WITH INTERNATIONAL PRODUCT STANDARDS

This paper considers the incentives of firms to conform to an exogenous international product standard. Product standardization enables traditional, price-based international competition. But the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market. This leads to multi-attribute competition between products and will generally reduce trade flows. Not only do incumbent firms using a different technology have an incentive to deviate from the international standard, but a host country government that is also concerned for the welfare of consumers who own the old technology has no incentive to enforce the international standard. Indeed, the government may value deviation from the international standard more than the firm does, thereby creating incentives to adopt and enforce technical barriers to trade. The results highlight the challenge lock-in effects pose to the international standard-setting process.


Issue Date:
1999
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/14597
Total Pages:
36
JEL Codes:
F02; F13; F15; L11; L13; L51
Series Statement:
Working Paper
99-9




 Record created 2017-04-01, last modified 2017-08-23

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