Can Vendors Influence Switching Costs and Compatibility in an Environment with Open Standards?

This paper examines the potential social costs of standardization, including possible vendor reactions to standards and their impacts on the adoption of new technology and long-term market structure. Specifically, we study how vendors might react to standards in the market for routers and switches, two of the most important pieces of networking hardware for the information systems infrastructure of modern firms. Using data from over 22,000 establishments surveyed by Harte Hanks Market Intelligence, we provide evidence that vendors are able to maintain high switching costs in the market for routers and switches despite the presence of open standards in the industry. Several vendor actions are discussed in this paper, including manipulating horizontal compatibility between comparable rival products and vertical compatibility between complementary products, maintaining a broader product line, creating product suites, and targeting specific market segments. Our results further suggest that the presence of switching costs can lead to inefficient adoption of new information technology and that vendors may be able to influence the speed of new information technology adoption.