Abstract

International product standardization enables traditional, price-based competition. But the existence of redesign costs or network effects creates market frictions that diminish the incentive to standardize if there already exists a different technology in an established market. This leads to multi-attribute competition between products and will generally reduce trade flows. Not only do incumbent firms using a different technology have an incentive to deviate from an international standard, but a host country government concerned for its consumers’ welfare has no incentive to enforce the international standard and may even value deviation from the international standard through technical barriers to trade.

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