How Fragmentation Can Improve Co-ordination: Setting Standards in International Telecommunications

There is a stark contrast between the way industrial economics asks us to think about standard setting in telecommunications and the way standard-setting is actually organized. On the one hand, leading scholars maintain that standard setting is a natural monopoly. On the other hand, the number of standards organizations for telecommunications is quite large and there is no indication that this number will decrease. The paper analyzes how to resolve this discrep ancy. It argues that there are reasons to believe that the natural monopoly hypothesis is wrong. Under a certain set of conditions which are prevalent in international telecommunications, the distribution of standard setting to a multitude of competing standards organizations is both stable and efficient.