Standards Competition In The Presence Of Digital ConversionTechnology:An Empirical Analysis Of The Flash Memory Card Market

Both theoretical and empirical evidence suggest that in markets withstandards competition, strong network effects can make the strong growstronger and, in some circumstances, even 'tip' the market towards asingle, winner-take-all standard. We theorize that in the presence oflow cost conversion technologies and digital content, the tendencytowards market dominance can be lessened to the point where multipleincompatible standards are viable. Our hypotheses are empiricallyexamined in the context of the flash memory card market where bothnetwork effects and high quality conversion are present. The resultsshow that the availability of digital converters reduces the pricepremium of the leading flash card formats more than of the minorityformats. Therefore, producers of the non-dominant standards can bebetter off with the provision of conversion technology as thistechnology neutralizes the impact of network effects that would haveotherwise been more potent. We discuss both the social and privateimplications of our findings.