The Fable of the Keys

Abstract

The term 'standard' can refer to any social convention (standard of conduct, legal standards), but it most often refers to conventions that require exact uniformity (standards of measurement, computer operating systems). Current efforts to control the development of high-resolution television, multitasking computer-operating systems, and videotaping formats have heightened interest in standards. The economic literature on standards has focused recently on the possibility of market failure with respect to the choice of a standard. In its strongest form, the argument is essentially this: an established standard can persist over a challenger, even where all users prefer a world dominated by the challenger, if users are unable to coordinate their choices. For example, each of us might prefer to have Beta-format videocassette recorders as long as prerecorded Beta tapes continue to be produced, but individually we do not buy Beta machines because we don't think enough others will buy Beta machines to sustain the prerecorded tape supply. I don't buy a Beta format machine because I think that you won't you don't buy one because you think that I won't. In the end, we both turn out to be correct, but we are both worse off than we might have been. This, of course, is a catch-22 that we might suppose to be common in the economy. There will be no cars until there are gas stations there will be no gas stations until there are cars. Without some way out of this conundrum, joyriding can never become a favorite activity of teenagers.