The dynamics of pre-market standardization

► Firms often prefer to standardize on one technology between two competitors. ► Standard battles only emerge between similar firms and very strong or weak network effects. ► Inefficiencies arise because a wrong or premature technology is chosen or a standard battle occurs. ► In our case, discrete time generates more realistic equilibria than continuous time. This paper studies an under-explored phenomenon: standardization arising during the technology development stage from the interplay of incentives to compete and cooperate. We identify circumstances in which a firm will prelaunch its technology (i.e., publish detailed technological specifications) and the rival abandons its own technology to support a common standard in a two-stage two-player game with network effects and licensing and a fixed deadline for technological development. We find that failure to standardize predominantly occurs for technologies with very weak or very strong network effects, and for firms with similar technological capabilities. The outcome can depend on what would be perceived by market participants as a simultaneous prelaunch: a prelaunch on the same day, during the same week, or month, and so on, depending on how time is discretized.