Essays on standardization and cross ownership in information industries

Abstract

This thesis consists of three essays on standardization and cross ownership in information industries. The essays deal with strategic and policy issues in information industries, such as standardization for a new telecommunications service, standardization of platform for wireless Internet service, and cross ownership of wireline and wireless carriers. On the other hand, they are concerned with inter-firm relationship based on product characteristics. The first essay focuses on product compatibility based on the horizontal differentiation of products, the second essay explores standardization in system products composed of multiple components, and the final essay deals with product relationship such as substitutes or complements to analyze the welfare implications of cross ownership. The first essay explores the standardization or compatibility decisions of the firms producing horizontally differentiated products in the presence of network effect. It emphasizes that firms face the trade-off between the gain of increased network effect and the loss of reduced product differentiation when they make compatibility decisions. The major conclusions are that if compatibility significantly reduces product differentiation, firms have no incentive to agree on compatibility. In addition, the firms achieve socially insufficient compatibility, but in some cases incompatibility is socially desirable, so direct intervention by the government is not always justified. The results of the analysis help understand why the standardization initiative of the IMT-2000 failed even with anticipated network effects. The second essay analyzes the effect of platform standardization on the wireless Internet industry. Wireless Internet service can be seen as consisting of a network component and a content component. Using a simple model of systems competition, we show that NPs and CPs are in favor of or against platform standardization depending on the level of the basic willingness to pay ...