A model for the emergence and diffusion of software standards

The economic impact of the growth dynamic of standards is often described from a macroeconomic point of view, employing network effect theory and models dealing with externalities. Game-theoretic models try to depict and predict the situation on the microeconomic side. We follow a new approach, which simulates the system's behavior based on the modeling of a set of individual conduction rules, and their interaction in a closed environment. Implementing such an agent based computational economics approach, using a simulation environment called SWARM, we assume the existence of three firm sizes combined with three types of standards. Each standard has an optimal fit to a firm size, which results in reduced costs according to standardization benefits, whereas other combinations lead to lower savings respectively. In addition we postulate initial standardization cost for internal restructuring measures and different scopes of communication fitted to the three firm types. Each firm can repeatedly decide to standardize in various simulation passes depending on an expected standardization benefit. As an outcome of various simulations, we observe a dominance of the communication standard preferred by the large companies as a function of growing network density. For an increasing communication range the same behavior emerges for all firm types. The model underpins the well-known concentration tendency in real worlds' technology markets.