Wednesday, August 20, 2008
Posted by D. Daniel Sokol
Luis M.B. Cabral, Leonard N. Stern School of Business - Department of Economics and David J. Salant, Columbia University - Columbia Institute for Tele Information, discuss Evolving Technologies and Standards Regulation in their latest working paper.
ABSTRACT: 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.