International Journal of Industrial Organization, Nov 1, 2012
We examine the impact of the licensing policies of one or more upstream owners of essential intel... more We examine the impact of the licensing policies of one or more upstream owners of essential intellectual property (IP hereafter) on the variety offered by a downstream industry, as well as on consumers and social welfare. When an upstream monopoly owner of essential IP increases the number of licenses, it enhances product variety, adding to consumer value, but it also intensifies downstream competition, and thus dissipates profits. As a result, the upstream IP monopoly may want to provide too many or too few licenses, relatively to what maximizes consumer surplus or social welfare. With multiple owners of essential IP, royalty stacking increases aggregate licensing fees and thus tends to limit the number of licensees, which can also reduce downstream prices for consumers. We characterize the conditions under which these reductions in downstream prices and variety is beneficial to consumers or society.
This paper takes an axiomatic approach to determining "Fair, Reasonable, and Non-Discriminatory" ... more This paper takes an axiomatic approach to determining "Fair, Reasonable, and Non-Discriminatory" ("FRAND") royalties for intellectual property ("IP") rights. Drawing on the extensive game theory literature on "surplus sharing/cost sharing" problems, I describe specific formulas for determining license fees that can be derived from basic fairness principles. In particular, I describe the Shapley Value, the Proportional Sharing Rule and the Nucleolus. The Proportional Sharing Rule has the advantage that it is the only rule that is invariant to mergers and splitting of the IP owners. I also explain why, at times, there may be no acceptable to solution. Further, I contrast these rules with the Efficient Component Pricing Rule ("ECPR") suggested by Baumol and Swanson. Unlike, the ECPR, the rules identified in this paper can uniquely determine license fees when there is more than one owner of essential IP, and also incorporate various notions of fairness and equity.
HAL (Le Centre pour la Communication Scientifique Directe), Apr 4, 2022
An auction of transport capacity can only roll forward if competitive bidders show up at the star... more An auction of transport capacity can only roll forward if competitive bidders show up at the start. To characterize bidding behavior, we develop a model with a single incumbent potentially in competition with a single challenger; should the challenger obtain slots, the two firms will engage post-auction in capacity constrained price competition. We show how the auction structure, that is, whether the slots are auctioned one at a time, and if not, how they are packaged affects the outcome. Our key finding is that the division of the available slots into tranches can significantly affect the outcome of the auction. Absent any set-asides, a single auction for all the slots will almost certainly be won by an incumbent. Set-asides can enable the challenger to win one or more packages of slots. Further, when the slots are split up, and auctioned one-at-a-time or in batches, a challenger's prospects improve significantly, and no longer rely only on set-asides. The implications of our analysis are (a) the outcome will depend crucially on auction design decisions, (b) set-asides for challengers can help and (c) an auction that results in successful entry by challengers may result in reduced auction revenues and industry profits.
Spectrum regulation necessarily involves some regulation of the technology that licensees can use... more Spectrum regulation necessarily involves some regulation of the technology that licensees can use. One commonly stated assertion is that a mandated single standard, the solution followed by the EU for 2G wireless, is a successful model for spectrum regulation. We argue that a single standard leads to a free riding problem, and thus to a significant decrease in marginal incentives for R&D investment. In this context, keeping two separate standards may be a necessary evil to sustain a high level of R&D expenditures. We also provide conditions such that a non-standardization equilibrium is better for consumers and for society as a whole.
In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a ... more In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. We examine the statistical relationship between data that re£ects hardware and software sales for the competing platforms. We conclude that the economic processes underlying the development of DOS di¡ered from those underlying CP/M and that many of these di¡erences related to the role of software development. i. introduction In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. While this market episode has generated many overlapping analyses and theories, it has largely escaped systematic statistical analysis. This is not so surprising. Many empirical implications of standardization models depend on unobservable features of competitive behavior, vendor costs or consumer preferences. In addition, these episodes tend to happen in new or incipient markets. It is very rare for such a market episode to lend itself to direct measurement of the factors underlying positive feedback. In this paper we bring some data to bear on
In this paper, we examine the tradeoff between mandated standards and interconnection. We first p... more In this paper, we examine the tradeoff between mandated standards and interconnection. We first provide institutional background; we then empirically examine whether, other things being equal, penetration rates were lower (or higher) for countries with multiple incompatible digital standards. We finally discuss the implications of our results for the current debate about 3G standards, in which CDMA2000, which is backed mainly by US firms, competes with WCDMA, which is backed by the European Community.
Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wir... more Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wireless for voice and data services, the so-called 2G and 3G bands. 1 The European Community has mandated a harmonized standard, GSM, in the 2G bands, and has adopted Wideband CDMA (WCDMA) in the 3G bands. In contrast, the North American approach has been to allow the market to decide, that is, operators have been free to choose among the recognized four digital wireless standards for 2G: CDMA/IS-95, GSM, TDMA and iDEN. The issue of market-based versus mandated standards has been addressed in many other industries. In most settings where network effects are present, compatibility across platforms (i.e., standardization) has been a key determinant of the success or failure of a particular technology. In the case of wireless telecommunications, however, interconnection and the availability of the relevant infrastructure can be a substitute for compatibility. An individual subscribing to any one of the wireless technologies in the U.S. can easily make calls to and receive calls from subscribers to any one of the other standards (or to and from the wire-line POTS network) as long as there is (i) interconnection between networks and (ii) the relevant infrastructure is in place. In the U.S. (and several other developed countries), interconnection has been achieved by standard interconnection protocols. 1 There are several so-called generations in mobile-first generation (1G) is analogue service, second generation (2G) is digital but circuit switched, while third generation (3G) refers to higher bandwidth packet switched networks. 2.5G refers to overlaying a packet switched network on the 2G infrastructure.
In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a ... more In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. We examine the statistical relationship between data that re£ects hardware and software sales for the competing platforms. We conclude that the economic processes underlying the development of DOS di¡ered from those underlying CP/M and that many of these di¡erences related to the role of software development. i. introduction In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. While this market episode has generated many overlapping analyses and theories, it has largely escaped systematic statistical analysis. This is not so surprising. Many empirical implications of standardization models depend on unobservable features of competitive behavior, vendor costs or consumer preferences. In addition, these episodes tend to happen in new or incipient markets. It is very rare for such a market episode to lend itself to direct measurement of the factors underlying positive feedback. In this paper we bring some data to bear on
Regulators must often allocate essential inputs, such as spectrum rights, transmission capacity o... more Regulators must often allocate essential inputs, such as spectrum rights, transmission capacity or airport landing slots, which can transform the structure of the downstream market. These decisions involve a trade-off, as provisions aimed at fostering competition and lowering prices for consumers, also tend to limit the proceeds from the sale of the inputs. We first characterize the optimal allocation, from the standpoints of consumer and total welfare. We then note that standard auctions yield substantially different outcomes. Finally, we show how various regulatory instruments can be used to implement the desired allocation
In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times... more In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times, (3) technical uncertainty, and (4) alternative technologies sponsored by competing vendors. We identify conditions under which orphaning arises endogenously in a framework of dynamic competition. We then use the model to examine the development of the microcomputer market in the early 1980s, when the orphaning of a widely-adopted operating system occurred. We find that the data characterizing this event are consistent with our theoretical framework.
Provision of video-to-the-home (VTTH) services has been largely dominated by one medium, cable te... more Provision of video-to-the-home (VTTH) services has been largely dominated by one medium, cable television (CATV). The goal of the 1992 Cable Television Consumer and Competition Protection Act (CTCCPA) was to insure a VTTH services industry in which cable television franchises would face competition from other technologies capable of transporting multichannel video signals to the home. These video-delivery technologies include satellite master antenna television (SMATV), direct broadcast satellite
In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times... more In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times, (3) technical uncertainty, and (4) alternative technologies sponsored by competing vendors. We identify conditions under which orphaning arises endogenously in a framework of dynamic competition. We then use the model to examine the development of the micro-computer market in the early 1980s, when the orphaning
Stanford Graduate School of Business. His research is on microeconomic theory, especially informa... more Stanford Graduate School of Business. His research is on microeconomic theory, especially information economics, market design, and game theory/strategy. His recent papers consider auction design, bargaining theory, repeated games, and collusion in markets. He received his PhD in Economics from the University of Rochester and has since been working at the Stanford GSB. He is currently an associate editor for the American Economic Review.
In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a ... more In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. We examine the statistical relationship between data that re£ects hardware and software sales for the competing platforms. We conclude that the economic processes underlying the development of DOS di¡ered from those underlying CP/M and that many of these di¡erences related to the role of software development. In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. While this market episode has generated many overlapping analyses and theories, it has largely escaped systematic statistical analysis. This is not so surprising. Many empirical implications of standardization models depend on unobservable features of competitive behavior, vendor costs or consumer preferences. In addition, these episodes tend to happen in new or incipient markets. It is very rare for such a market episode to lend itself to direct measurement of the factors underlying positive feedback. In this paper we bring some data to bear on
Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major ru... more Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Federal Communications Commission (FCC), entitled "Promoting Efficient Use of Spectrum Through Elimination of Barriers to the Development of Secondary Markets" (FCC 03-113). We received the rule on December 4, 2003. It was published in the Federal Register as a final rule on November 25, 2003. 68 Fed. Reg. 66252.
Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wir... more Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wireless for voice and data services, the so-called 2G and 3G bands. 1 The European Community has mandated a harmonized standard, GSM, in the 2G bands, and has adopted Wideband CDMA (WCDMA) in the 3G bands. In contrast, the North American approach has been to allow the market to decide, that is, operators have been free to choose among the recognized four digital wireless standards for 2G: CDMA/IS-95, GSM, TDMA and iDEN. The issue of market-based versus mandated standards has been addressed in many other industries. In most settings where network effects are present, compatibility across platforms (i.e., standardization) has been a key determinant of the success or failure of a particular technology. In the case of wireless telecommunications, however, interconnection and the availability of the relevant infrastructure can be a substitute for compatibility. An individual subscribing to any one of the wireless technologies in the U.S. can easily make calls to and receive calls from subscribers to any one of the other standards (or to and from the wire-line POTS network) as long as there is (i) interconnection between networks and (ii) the relevant infrastructure is in place. In the U.S. (and several other developed countries), interconnection has been achieved by standard interconnection protocols. 1 There are several so-called generations in mobile-first generation (1G) is analogue service, second generation (2G) is digital but circuit switched, while third generation (3G) refers to higher bandwidth packet switched networks. 2.5G refers to overlaying a packet switched network on the 2G infrastructure.
How should a monopolist price a durable good or a new technology that is subject to network exter... more How should a monopolist price a durable good or a new technology that is subject to network externalities? In particular, should the monopolist set a low \introductory price" to attract a \critical mass" of adopters? In this paper, we provide intuition as to when and why introductory pricing might occur in the presence of network externalities. Incomplete information about demand or asymmetric information about costs is necessary for introductory pricing to occur in equilibrium when consumers are small. We are grateful to Joe Farrell, Arthur Fishman, Kai-Uwe K uhn, Jorge Padilla, three referees, and seminar participants at CORE, Tel Aviv University, University of Toulouse (ASSET Meeting) and University of California at Berkeley for useful comments and suggestions. The usual disclaimer applies.
International Journal of Industrial Organization, Nov 1, 2012
We examine the impact of the licensing policies of one or more upstream owners of essential intel... more We examine the impact of the licensing policies of one or more upstream owners of essential intellectual property (IP hereafter) on the variety offered by a downstream industry, as well as on consumers and social welfare. When an upstream monopoly owner of essential IP increases the number of licenses, it enhances product variety, adding to consumer value, but it also intensifies downstream competition, and thus dissipates profits. As a result, the upstream IP monopoly may want to provide too many or too few licenses, relatively to what maximizes consumer surplus or social welfare. With multiple owners of essential IP, royalty stacking increases aggregate licensing fees and thus tends to limit the number of licensees, which can also reduce downstream prices for consumers. We characterize the conditions under which these reductions in downstream prices and variety is beneficial to consumers or society.
This paper takes an axiomatic approach to determining "Fair, Reasonable, and Non-Discriminatory" ... more This paper takes an axiomatic approach to determining "Fair, Reasonable, and Non-Discriminatory" ("FRAND") royalties for intellectual property ("IP") rights. Drawing on the extensive game theory literature on "surplus sharing/cost sharing" problems, I describe specific formulas for determining license fees that can be derived from basic fairness principles. In particular, I describe the Shapley Value, the Proportional Sharing Rule and the Nucleolus. The Proportional Sharing Rule has the advantage that it is the only rule that is invariant to mergers and splitting of the IP owners. I also explain why, at times, there may be no acceptable to solution. Further, I contrast these rules with the Efficient Component Pricing Rule ("ECPR") suggested by Baumol and Swanson. Unlike, the ECPR, the rules identified in this paper can uniquely determine license fees when there is more than one owner of essential IP, and also incorporate various notions of fairness and equity.
HAL (Le Centre pour la Communication Scientifique Directe), Apr 4, 2022
An auction of transport capacity can only roll forward if competitive bidders show up at the star... more An auction of transport capacity can only roll forward if competitive bidders show up at the start. To characterize bidding behavior, we develop a model with a single incumbent potentially in competition with a single challenger; should the challenger obtain slots, the two firms will engage post-auction in capacity constrained price competition. We show how the auction structure, that is, whether the slots are auctioned one at a time, and if not, how they are packaged affects the outcome. Our key finding is that the division of the available slots into tranches can significantly affect the outcome of the auction. Absent any set-asides, a single auction for all the slots will almost certainly be won by an incumbent. Set-asides can enable the challenger to win one or more packages of slots. Further, when the slots are split up, and auctioned one-at-a-time or in batches, a challenger's prospects improve significantly, and no longer rely only on set-asides. The implications of our analysis are (a) the outcome will depend crucially on auction design decisions, (b) set-asides for challengers can help and (c) an auction that results in successful entry by challengers may result in reduced auction revenues and industry profits.
Spectrum regulation necessarily involves some regulation of the technology that licensees can use... more Spectrum regulation necessarily involves some regulation of the technology that licensees can use. One commonly stated assertion is that a mandated single standard, the solution followed by the EU for 2G wireless, is a successful model for spectrum regulation. We argue that a single standard leads to a free riding problem, and thus to a significant decrease in marginal incentives for R&D investment. In this context, keeping two separate standards may be a necessary evil to sustain a high level of R&D expenditures. We also provide conditions such that a non-standardization equilibrium is better for consumers and for society as a whole.
In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a ... more In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. We examine the statistical relationship between data that re£ects hardware and software sales for the competing platforms. We conclude that the economic processes underlying the development of DOS di¡ered from those underlying CP/M and that many of these di¡erences related to the role of software development. i. introduction In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. While this market episode has generated many overlapping analyses and theories, it has largely escaped systematic statistical analysis. This is not so surprising. Many empirical implications of standardization models depend on unobservable features of competitive behavior, vendor costs or consumer preferences. In addition, these episodes tend to happen in new or incipient markets. It is very rare for such a market episode to lend itself to direct measurement of the factors underlying positive feedback. In this paper we bring some data to bear on
In this paper, we examine the tradeoff between mandated standards and interconnection. We first p... more In this paper, we examine the tradeoff between mandated standards and interconnection. We first provide institutional background; we then empirically examine whether, other things being equal, penetration rates were lower (or higher) for countries with multiple incompatible digital standards. We finally discuss the implications of our results for the current debate about 3G standards, in which CDMA2000, which is backed mainly by US firms, competes with WCDMA, which is backed by the European Community.
Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wir... more Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wireless for voice and data services, the so-called 2G and 3G bands. 1 The European Community has mandated a harmonized standard, GSM, in the 2G bands, and has adopted Wideband CDMA (WCDMA) in the 3G bands. In contrast, the North American approach has been to allow the market to decide, that is, operators have been free to choose among the recognized four digital wireless standards for 2G: CDMA/IS-95, GSM, TDMA and iDEN. The issue of market-based versus mandated standards has been addressed in many other industries. In most settings where network effects are present, compatibility across platforms (i.e., standardization) has been a key determinant of the success or failure of a particular technology. In the case of wireless telecommunications, however, interconnection and the availability of the relevant infrastructure can be a substitute for compatibility. An individual subscribing to any one of the wireless technologies in the U.S. can easily make calls to and receive calls from subscribers to any one of the other standards (or to and from the wire-line POTS network) as long as there is (i) interconnection between networks and (ii) the relevant infrastructure is in place. In the U.S. (and several other developed countries), interconnection has been achieved by standard interconnection protocols. 1 There are several so-called generations in mobile-first generation (1G) is analogue service, second generation (2G) is digital but circuit switched, while third generation (3G) refers to higher bandwidth packet switched networks. 2.5G refers to overlaying a packet switched network on the 2G infrastructure.
In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a ... more In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. We examine the statistical relationship between data that re£ects hardware and software sales for the competing platforms. We conclude that the economic processes underlying the development of DOS di¡ered from those underlying CP/M and that many of these di¡erences related to the role of software development. i. introduction In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. While this market episode has generated many overlapping analyses and theories, it has largely escaped systematic statistical analysis. This is not so surprising. Many empirical implications of standardization models depend on unobservable features of competitive behavior, vendor costs or consumer preferences. In addition, these episodes tend to happen in new or incipient markets. It is very rare for such a market episode to lend itself to direct measurement of the factors underlying positive feedback. In this paper we bring some data to bear on
Regulators must often allocate essential inputs, such as spectrum rights, transmission capacity o... more Regulators must often allocate essential inputs, such as spectrum rights, transmission capacity or airport landing slots, which can transform the structure of the downstream market. These decisions involve a trade-off, as provisions aimed at fostering competition and lowering prices for consumers, also tend to limit the proceeds from the sale of the inputs. We first characterize the optimal allocation, from the standpoints of consumer and total welfare. We then note that standard auctions yield substantially different outcomes. Finally, we show how various regulatory instruments can be used to implement the desired allocation
In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times... more In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times, (3) technical uncertainty, and (4) alternative technologies sponsored by competing vendors. We identify conditions under which orphaning arises endogenously in a framework of dynamic competition. We then use the model to examine the development of the microcomputer market in the early 1980s, when the orphaning of a widely-adopted operating system occurred. We find that the data characterizing this event are consistent with our theoretical framework.
Provision of video-to-the-home (VTTH) services has been largely dominated by one medium, cable te... more Provision of video-to-the-home (VTTH) services has been largely dominated by one medium, cable television (CATV). The goal of the 1992 Cable Television Consumer and Competition Protection Act (CTCCPA) was to insure a VTTH services industry in which cable television franchises would face competition from other technologies capable of transporting multichannel video signals to the home. These video-delivery technologies include satellite master antenna television (SMATV), direct broadcast satellite
In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times... more In this paper we develop a model with (1) differentiated consumers, (2) endogenous adoption times, (3) technical uncertainty, and (4) alternative technologies sponsored by competing vendors. We identify conditions under which orphaning arises endogenously in a framework of dynamic competition. We then use the model to examine the development of the micro-computer market in the early 1980s, when the orphaning
Stanford Graduate School of Business. His research is on microeconomic theory, especially informa... more Stanford Graduate School of Business. His research is on microeconomic theory, especially information economics, market design, and game theory/strategy. His recent papers consider auction design, bargaining theory, repeated games, and collusion in markets. He received his PhD in Economics from the University of Rochester and has since been working at the Stanford GSB. He is currently an associate editor for the American Economic Review.
In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a ... more In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. We examine the statistical relationship between data that re£ects hardware and software sales for the competing platforms. We conclude that the economic processes underlying the development of DOS di¡ered from those underlying CP/M and that many of these di¡erences related to the role of software development. In this paper we examine the development of the microcomputer market in the early 1980s. CP/M, a widely-adopted operating system, was orphaned by the user and the development communities. A new operating system, DOS, and a new hardware platform, the IBM PC, became the predominant industry standard. While this market episode has generated many overlapping analyses and theories, it has largely escaped systematic statistical analysis. This is not so surprising. Many empirical implications of standardization models depend on unobservable features of competitive behavior, vendor costs or consumer preferences. In addition, these episodes tend to happen in new or incipient markets. It is very rare for such a market episode to lend itself to direct measurement of the factors underlying positive feedback. In this paper we bring some data to bear on
Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major ru... more Pursuant to section 801(a)(2)(A) of title 5, United States Code, this is our report on a major rule promulgated by the Federal Communications Commission (FCC), entitled "Promoting Efficient Use of Spectrum Through Elimination of Barriers to the Development of Secondary Markets" (FCC 03-113). We received the rule on December 4, 2003. It was published in the Federal Register as a final rule on November 25, 2003. 68 Fed. Reg. 66252.
Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wir... more Since 1994, Europe and North America have taken divergent approaches to managing spectrum for wireless for voice and data services, the so-called 2G and 3G bands. 1 The European Community has mandated a harmonized standard, GSM, in the 2G bands, and has adopted Wideband CDMA (WCDMA) in the 3G bands. In contrast, the North American approach has been to allow the market to decide, that is, operators have been free to choose among the recognized four digital wireless standards for 2G: CDMA/IS-95, GSM, TDMA and iDEN. The issue of market-based versus mandated standards has been addressed in many other industries. In most settings where network effects are present, compatibility across platforms (i.e., standardization) has been a key determinant of the success or failure of a particular technology. In the case of wireless telecommunications, however, interconnection and the availability of the relevant infrastructure can be a substitute for compatibility. An individual subscribing to any one of the wireless technologies in the U.S. can easily make calls to and receive calls from subscribers to any one of the other standards (or to and from the wire-line POTS network) as long as there is (i) interconnection between networks and (ii) the relevant infrastructure is in place. In the U.S. (and several other developed countries), interconnection has been achieved by standard interconnection protocols. 1 There are several so-called generations in mobile-first generation (1G) is analogue service, second generation (2G) is digital but circuit switched, while third generation (3G) refers to higher bandwidth packet switched networks. 2.5G refers to overlaying a packet switched network on the 2G infrastructure.
How should a monopolist price a durable good or a new technology that is subject to network exter... more How should a monopolist price a durable good or a new technology that is subject to network externalities? In particular, should the monopolist set a low \introductory price" to attract a \critical mass" of adopters? In this paper, we provide intuition as to when and why introductory pricing might occur in the presence of network externalities. Incomplete information about demand or asymmetric information about costs is necessary for introductory pricing to occur in equilibrium when consumers are small. We are grateful to Joe Farrell, Arthur Fishman, Kai-Uwe K uhn, Jorge Padilla, three referees, and seminar participants at CORE, Tel Aviv University, University of Toulouse (ASSET Meeting) and University of California at Berkeley for useful comments and suggestions. The usual disclaimer applies.
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Papers by David Salant