Choosing How to Compete: Strategies and Tactics in Standardization

In a network industry, each firm must decide whether or not it wants its product to be compatible with those of rivals. This horizontal compatibility strategy determines whether competition is a battle to establish a standard or the more conventional competition within a standard. The two forms of competition involve different tactics and may differ in the extent to which they dissipate industry profits. In some cases, all firms in an industry may prefer the same form of competition. In other cases, firms may prefer different forms of competition and either may prevail.