Software Standards and Market Outcomes
Two software companies must independently decide whether to adopt 'Standard A' or a new, more efficient 'Standard B'. If both adopt Standard A, they each earn $3 million. If both adopt Standard B, they each earn $8 million. However, if they adopt different standards, their products will be incompatible, leading to low profits: the company adopting Standard B earns $1 million while the one sticking with Standard A earns $0. Based on this scenario, explain why the 'invisible hand'—the idea that individual self-interest leads to a good outcome for the group—might fail to produce the best result for both companies.
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Software Standards and Market Outcomes