Academic journal article Contemporary Economic Policy

A Model for Standard Setting: High Definition Television

Academic journal article Contemporary Economic Policy

A Model for Standard Setting: High Definition Television

Article excerpt

I. INTRODUCTION

Standardization involves both coordination and conflict. The case of high definition television demonstrates the relationship between these two opposites. This paper reviews the importance of HDTV, presents a model for the standard setting process in the United States and abroad, and remarks on factors not incorporated in the model. The model points out the elements that governments consider when determining standards and reveals why a standard setting competition may be preferable to market driven standardization in the absence of collaboration.

The Japanese developed HDTV in the 1970s. Until recently, HDTV was not much more than an improved resolution version of the existing National Television Systems Committee (NTSC) standard. Digital television, which was thought to be at least a decade away from viability, currently is the only system that the United States considers. Given Europe's decision to abandon plans for an analog HDTV standard, HDTV clearly now will be defined as digital television.

Setting a standard for digital HDTV could produce many benefits. The convergence of computers, television, and communications technologies is desirable because it increases the flow of information in society. Digital standards for television would reduce degradation and other costs of converting from one medium to another. Digital standards also could increase the efficiency of fiber optic television transmission. This would encourage investments in infrastructure by private companies wishing to provide services such as video-on-demand. The development of digital television involves technological spillovers. Research on HDTV already has brought about advances in high resolution displays, compression, digital signal processing, and analog to digital conversion. Additional applications such as telemedicine, videoconferencing, missile defense systems, interactive education, and retraining could be more rapidly developed because of advances related to digital HDTV. HDTV also would cause linkage spillovers in such activities as semiconductor production. Several national governments have invested great sums in research and development because they want their own companies to be able to produce the equipment that consumers will buy during the transition to HDTV. Beltz (1991) details the expenditures that Japan and the European Union have made to promote indigenous (locally developed) standards. Many U.S. politicians support similar proposals (Beltz, 1991). High definition television is, therefore, technologically and economically important. As with any such new technology, standards must precede adoption.

The model in the analysis here helps explain the relative success of the U.S. standard setting process for HDTV and thus provides a rationale for government involvement in standardization as well as a means for understanding technical progress in network industries.

II. STANDARD SETTING IN THE UNITED STATES AND ABROAD

Analyzing the intricacies of standard setting requires establishing a theoretical framework. Besen and Saloner (1989, p. 184) suggest classifying the types of standardization processes in a two-by-two matrix. The rows represent the level of interest in a particular standard while the columns measure the level of interest in universally adopting any standard. Conflict typically occurs when two or more standards battle for dominance in the market. Coordination results from the need to standardize in order to sell anything. Private goods involve an industry leader's reluctance to allow competitors to use its proprietary standards. In the public goods case, the per capita gains from standardization are so small that private costs exceed private benefits (Besen and Saloner, 1989, pp. 180-184). HDTV stimulates a great interest in universally adopting a standard, but vested interests in particular technologies vary at different levels of analysis. Therefore, the analysis here concentrates on the left column of coordination versus conflict. …

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