Standards Setting Consortia: A Transaction Cost Perspective

Consortiums are highly successful organizational systems for IT standard setting. However, it is not clear what advantages consortiums offer over the traditional approaches to standard-setting. We apply transaction cost economics to examine how and why consortiums are successful for standard-setting. We show that when standards are viewed as bundles of complementary patents, consortiums economize on transaction costs relative to the market. Further consortiums also economize on transaction costs relative to hierarchies, provided coordination costs are relatively lower than other types of transaction costs.