ABSTRACT
This chapter examines the role of alternative forms of governance—including markets, integrated firms, joint ventures, standards-setting bodies, and regulation—in achieving interoperability in the computer and telecommunications industries. It also examines the balance of cooperative and competitive forces in interoperability from an organizational perspective. The chapter defines interoperability, describes the nature of the contracting problem, and introduces the transaction cost framework. The transaction cost framework is applied to explain the role played by various organizational forms when all firms have incentives to achieve interoperability. The chapter considers the policy implications when dominant firms strategically prevent rivals from producing compatible products. Specifically, it identifies easy cases in which rivals or well-defined regulatory interventions can thwart such strategies, and hard cases in which regulatory efforts to expand the scope of interoperability pose fundamental contracting problems that are not adequately addressed by any feasible organizational form.
