Standard wars, tied standards, and network externality induced path dependence in the ICT sector

• Cross-sectoral tying of technology competition with network effects is modeled.
• The problem is analyzed as a replicator model and as an agent-based simulation.
• Results suggest that lock-in effects are increased by cross-sectoral tying.
• Empirics from the ICT sector indicate a high relevance of this sector-tying effect.

It is well-established that technological standards are subject to network externalities. These lead to lock-in situations with asymmetric (oligopolistic or monopolistic) industry structure and occasionally to persisting shortcomings in the current industry standard despite technically feasible alternatives. Taking the ICT sector as an example this paper discusses the special case of inter-sectoral tying of standards, interconnected network effects of connected standards in different sectors, and the resulting impact on the industry structure. Qualitative and quantitative evidences suggest that this phenomenon is very common in the ICT sector, possibly also in other sectors. The problem is formally analyzed as a replicator model and as an agent-based simulation model. It is found that tying reinforces lock-ins and the resulting effects.