Studies On Competition And Cooperation Of Standards For ICT Industry Based On Network Effect

ICT (Information and Communication Technology) industry is playing a more and more important role in economy and society. It's going with some distinctive technological features and special economic characteristics, which are very different from those of traditional industries. Network effect is one of those charateristics in ICT industry. In ICT industry, technical standards are not only taken as the pathway and purpose by competitors, but also taken as the most important factors which influence and determine the industrial performance. Focusing on the technical characteristics of ICT industry, this paper aims at studying competitive strategies and cooperative behaviors of technical standards in ICT industry.Among the industries with remarkable network effects,'fulfilled expectations demand curve'exists. Because this curve is a U-shaped quadric curve, there will be multi-ply equilibriums in the market, which bring about a'critical volume'equilibrium point in small-size network and a large-size network equilibrium point. With the analysis, a conclusion is: a'critical volume'equilibrium point in small-size network is an emanative unstable equilibrium; a large-size network equilibrium is a convergent stable equilibrium. Among the industries with remarkable network effect, manufacturers have to compete with others to get leading positions in competitive markets. Under positive feedback functions, the manufacturers reach'large-size network equilibrium'point and finally achieve the goal of'winner-take-all'. With the computers coming into being and informationalized society developing, the importance of Technical Standards is stressed much more than anytime before. In traditional economy the Standard was used for improving product quality, enhancing productivity, supplying product information and safeguarding production process, but now it has been emphasized as strategy of industrial competition, means to strengthen entry barriers, and even as strategy of economy development for a nation or a region. Besides the network effect, the ICT industries is also characterized by high technologies with complex, fast-changing and compatibility, so the technical standard functions are much more outstanding and distinct. In ICT industry, the ownership of technical standards is the most effective to achieve'large-size network equilibrium'. In the course of attaining technical standards, manufacturers will depend on differences of market structures to make different choices on standard competition or standard cooperation.The analysis is based on the traditional framework of SCP, but puts forward some advices to revise the conduct of a company.Traditional industrial organization theories used to be based on neo-classical'perfect competitive'market and'complete rationality'of manufacturers, and take the efficiency of neo-classical complete competition as the standard to measure the industrial performance, but the market they discuss is imperfect. In traditional theories, the optimized market structure should be perfect competitive. According to Simith-Young's principle, under certain conditions, market concentrating is an inevitable trend, in which big manufacturers jointly occupy the whole market, namely oligopoly market. In this case, collusion behavior is the critical factor in measuring the stability of market price and equilibrium. A conclusion can be drawn safely that, in traditional theories, market is in oligopoly structure and collusion is inevitable. In orthodox industrial organization theories, the competition and cooperation between enterprises can no coexist, cooperation is deemed to expel competition and undermine the social welfare. This traditional idea is based on the scale economy of suppliers and hypothesis of linear consumption demands, but when the market behaviors of enterprises are studied from the point of view of scale economy of demanders, this traditional theory will be at the risk of being overturned.In network economy, because of the existence of network effect and the function of positive feedback, the effect of demanders'scale economy is prominent. In the case of'fulfilled expectations demand curve', producer surplus of monopoly, consumer surplus and social total surplus will possibly vary on the same trend. Monopoly will not necessarily cut down production and increase monopolized price to make monopolized profit. This case is very different from traditional industries. To achieve more network effect, monopoly has motivations to decrease price and look for cooperation. In ICT industry, technical standard cooperation can promote socail welfare. The network effect is especially prominent in ICT industry. Technical standard can improve compatibility and correlation of products. Enlarging the network can provide customers with more value and realize maximum effect. For the reasons of characteristics in ICT industry, single enterprise has many limitations and impossibly monopolizes standard. Because compatibility and correlation can help realize maximum effect of network, in the course of standard formation, cooperation is the wisest option. Technical standard cooperation in ICT industry makes the distinct feature of network effect fully function. This cooperation is not necessarily collusion. Moreover, the technical innovation in ICT industry is no more substitution of traditional technical innovation, so more innovations are complemental modules under the same standard framework. Utilizing different module technologies together is the only way for each enterprise to maximize its value, otherwise there will be a'tragedy of anticommons', which surely hinders the innovation process.Government should play an active role in formation of technical standard. In the course of formation of technical standard in ICT industry, standard has a semi-public attribute and network effect is quite distinct, so the government's proper intervention can promote the development of industry. Nevertheless, this kind of intervention must be based on the occasion when the market operation of network effect fails. At the beginning period of standard formation, network effect doesn't appear prominently and option of technologies by market is not quiet clear, so government should not be involved in, but give up intervention to competitive choice process of market. In case of the standard monopolized by one enterprise, the government should supervise its behavior and determine whether it is abusing the standard. At the stage of new technologies to replace the old ones, the government's intervention focuses on preventing the current technical standard from blocking the development of next generation techniacl standard. For China, a developing country, the development of technical standard in ICT industry frequently encounters the challenges from the strategic behavior of technical standard union formed by foreign preponderant businesses. So technical standards should be fostered and developed with the strategies of national intellectual property and self-made standard innovation.