Introduction

• Pages: 1-23

1

CHAPTER I

INTRODUCTION

Standards are ubiquitous. Electrical plugs fit into standardized

outlets. Digital television sets receive signals broadcast in a standardized

format. Automobile tires come in standard sizes. Music is recorded in

standard media, such as CDs, audio cassettes, and MP3 files.

Fax

machines are designed to send, receive, and decipher standardized audio

tones. Computers have standardized interfaces that are used for such

devices as printers, cameras, joysticks, and disc drives. Building

materials

—such as bolts, nuts, nails, and plywood—come in standard

sizes and grades. Accredited colleges meet certain standards for their

faculty and facilities. Camera film is produced with standard sprocket

sizes and speeds. From the high tech to the mundane, standards, which

have been defined as “a set of characteristics or quantities that describe

features of a product, process, service, interface, or material,”1 are

everywhere. They are an integral part of our daily lives and modern

economies.

2

Standards have economic impact—both positive and negative. The

effect may be wide-

rangi

ng; standards can “affect product quality,

availability, variety, and price.”3 They can affect every stage of product

development, from research and development through production and

sales. Standards may therefore affect innovation, productive efficiency,

and market structure.4 It is well recognized that standards may have

1. N

ATIONAL

R

ESEARCH

C

OUNCIL

, S

TANDARDS

, C

ONFORMITY

A

SSESSMENT

,

AND

T

RADE

: INTO THE

21

ST

C

ENTURY

9 (1995) [hereinafter S

TANDARDS

,

C

ONFORMITY

A

SSESSMENT

,

AND

T

RADE

].

2. See, e.g., id. (“Many facets of our daily lives depend on standards.

Standards influence the products we use, the foods we eat, how we

communicate, our means of travel, our modes of work and play, and

many other activities. Standards may fu nction to inform, to facilitate, to

control, or to interconnect—frequently, a combination of such elements.

They serve economic ends, enabling or catalyzing commercial

transactions of all sorts. They also serve societal aims, such as protecting

health, safety, and the environment.”).

3. See, e.g., Donald J. LeCraw, Some Economic Effects of Standards, 16

APPLIED E

CON

.

507, 507 (1984).

4.

See, e.g.

, Gregory Tassey,

Standardization in Technology

-

Based Markets

,

29

R

ES

. P

OL

’Y 587, 587 (2000) (“Standards af fect the R&D, production,

and market penetration stages of economic activity and therefore have a

2

Handbook on the Antitrust Aspects of Standard Setting

enormous beneficial impact: they may improve the flow of information,

reduce transaction costs, allow manufacturers to achieve economies of

scale, and provide for interoperability.5 The powerful effects of

standards can also be negative: under certain circumstances standards

can create anticompetitive barriers to market entry, retard innovation,

raise rivals’ costs, facilitate collusion, and protect market position.6

Thus, standardization “can influence industry structure and thereby help

determine which firms benefit and which do not from technological

change.”

7 Moreover, a group of competitors can use standards to

insulate themselves from competition, either by excluding competitiv

e

products and services or by limiting competition among those firms

conforming to the standard.

8

Antitrust analysis of issues relating to the adoption and

implementation of standards typically involves an effort to identify

situations in which the anticompetitive effects of a standard have

outweighed its procompetitive benefits. Guiding much of this analysis

are two fundamental questions.

significant collective effect on innovation, productivity, and market

structure.”).

5. See, e.g., Peter K. Ashton, Some Economic Effects of Standards—

Comment

, 19 A

PPLIED

E

CON

. 1515, 1515 (1987) (“Standards influence

economic behaviour in such ways as reducing costs through the

achievement of economies of scale, reduction in transaction costs, and

improving the flow of information.”); see also Harry S. Gerla,

Federal

Antitrust Law and Trade and Professional Association Standards and

Certification

, 19 D

AYTON

L.

R

EV

. 471, 471 (1994) (“The creation of

standards and the certification of products, services, or providers as being

in compliance with those standards are processes that often benefit

consumers enormously.”).

6. See, e.g., Ashton,

supra

note 5, at 1515; LeCraw,

supra

note 3, at 507,

509 (standards may affect “the economic power of different economic

agents; barriers to entry into an industry and its openness to trade; the

amount, quality, and cost of information available to users; and . . . the

perceived and actual risk of product use,” a

nd can be used by competitors

“to build barriers to entry, to create, increase or entrench market power”);

Michael Goldenberg, S tandards, Public Welfare Defenses, and the

Antitrust Laws, 42 B

US

. L

AW

. 629, 631 (1987) (“standards can have an

anticompetitive

effect when they deny consumers the benefit of

innovative and less expensive products”).

7.

Tassey,

supra

note 4, at 587.

8. See, e.g., Peter Grindley et al., Standards Wars: The Use of Standard

Setting as a Means of Facilitating Cartels: Third Generation Wireless

Telecommunication Standard Setting, 3 I

NT

’

L

J.

C

OMM

.

L.

& P

OL

’Y 1, 32

(Summer 1999), available at http://www.ijclp.net/files/ijclp_web-

doc_2

-

3-1999.pdf (citing collusion and strategic use of standards as potential

anticompetitive concerns arisin

g from standard

-

setting activity).