Standardization Policy and International Trade

Article Source: Journal of International Economics 53, 2001, pp. 363-383
Publication Date:
Time to Read: 1 minute read
Written By:

 Oz Shy

Oz Shy

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This paper looks at whether government can set technology standards to limit trade from other nations.


Policy Relevance:

Because many technology products are more useful to consumers when other consumers use them, nations recognize one another’s technical standards and consumers benefit.


Key Takeaways:
  • “Network effects” mean that a product becomes more valuable to a consumer when there are more other users. One fax machine is not useful as no one can send to or receive from it, but as more are added it is more useful.

  • Because of network effects, standards that help different technology products work together are important to consumers. In theory, nations could use a technology standard to ensure that foreign products do not work with their products, and restrict trade.

  • Whether a nation’s policy is to recognize or not to recognize foreign standards, the nation will always recognize the standard in the end, because it is in its interest to do so.

  • Without network effects, two nations might decide to recognize each other’s standards but exclude a third nation. This tends to harm consumers, who are best off when all three recognize one another’s standards.

  • With network effects, nations have little reason to form unions that exclude other nations.



Neil Gandal

About Neil Gandal

Neil Gandal is a Professor of Economics and the Chair of the Eitan Berglas School of Economics at Tel Aviv University. His current research focuses on industrial organization, specifically on the economics of compatibility and standardization, the economics of the Internet, open source, and social networks.