Standards, Modularity, and Innovation: The Case of Medical Practice

The economics of standards and standard setting has grown to considerable prominence in the last few years. 1 Buttressed by influential neoclassical models of network externalities (Farrell & Saloner, 1985; Katz & Shapiro, 1985), this intellectual edifice has as its keystone David’s (1985) famous history of the QWERTY keyboard. In David’s account, the now-familiar arrangement of keys is a paradigmatic instance of path dependency. The choice of the QWERTY design was essentially a matter of historical accident; and, once that arrangement became dominant, the spiraling benefits of its network of complementary capabilities--notably touch-typing skills--effectively “locked” users into the QWERTY standard. This chapter takes up the issue of standard setting both in theory and in terms of a historical case study, namely, the setting of standards for the American medical profession in the early 20th century. As a contribution to the literature on standards and path dependency, however, this chapter diverges somewhat from the beaten path. First of all, our case involves behav-