Will this standards war become a quagmire?

Standards benefit consumers by encouraging coordination among producers of complementary products. But what happens when there are competing standards, like Blu-ray and HD DVD? This can be modeled as a coordination game with two equilibria where each format is trying to "steer" the game towards its preferred equilibrium.

Because of uncertainty about which format will eventually "win" the standards war, consumers are waiting to see what happens. On the Tennessean website, one reader commented "Anyone remember the Betamax? I do...never again! I'm going to wait and see who wins this battle."

So how do you win a standards war? While both formats are cutting price, they also seem to be competing for the exclusive support of content providers. For example, Spiderman 3 is available only in Blu-ray, and The Bourne Ultimatum is available only in HD DVD. Complementary service providers Target and Blockbuster have also committed to the Blu-ray standard. (See Carl Shapiro and Hal Varian on Waging a Standards War in Information Rules, HBS Press, 1998).

The European Commission has opened an antitrust investigation into whether Blu-ray "improperly" induced studios to release content exclusively in its format. HD DVD is thought to be lobbying the Commission to force movie studies to release content in both formats (article).

While this solution would benefit consumers who have already purchased a player, it may also turn the standards war into a quagmire (with no clear victor), which would hurt those who are waiting to purchase.

All this assumes that one standard will eventually emerge as the winner. But this may not be a winner-take-all war. Warner has developed a dual-format disc and said it would license the technology to other studios willing to back both formats.