ABSTRACT

The economic literature on standards has focused recently on the possibility of market failure with respect to the choice of a standard. In its strongest form, the argument is essentially this: an established standard can persist over a challenger, even where all users prefer a world dominated by the challenger, if users are unable to coordinate their choices. For example, each of us might prefer to have Beta-format videocassette recorders as long as prerecorded Beta tapes continue to be produced, but individually we do not buy Beta machines because we don’t think enough others will buy Beta machines to sustain the prerecorded tape supply. I don’t buy a Beta format machine because I think that you won’t; you don’t buy one because you think that I won’t. In the end, we both turn out to be correct, but we are both worse off than we might have been. This, of course, is a catch-22 that we might suppose to be common in the economy. There will be no cars until there are gas stations; there will be no gas stations until there are cars. Without some way out of this conundrum, joyriding can never become a favorite activity of teenagers2

The logic of these economic traps and conundrums is impeccable as far as it goes, but we would do well to consider that these traps are sometimes escaped in the market. Obviously, gas stations and automobiles do exist, so participants in the market must use some technique to unravel such conundrums. If this catch-22 is to warrant our attention as an empirical issue, at a minimum we would hope to see at least one

real-world example of it. In the economics literature on standards,3 the popular realworld example of this market failure is the standard Qwerty typewriter keyboard4 and its competition with the rival Dvorak keyboard.5 This example is noted frequently in newspaper and magazine reports, seems to be generally accepted as true, and was brought to economists’ attention by the papers of Paul David.6 According to the popular story, the keyboard invented by August Dvorak, a professor of education at the University of Washington, is vastly superior to the Qwerty keyboard developed by Christopher Sholes that is now in common use. We are to believe that, although the Dvorak keyboard is vastly superior to Qwerty, virtually no one trains on Dvorak because there are too few Dvorak machines, and there are virtually no Dvorak machines because there are too few Dvorak typists.