Strategic Information Updating: a Bayesian Analysis of Firm Entry Timing into an Industry Standard-setting Organization

Much is known about the drivers of firm-level technology standards adoption, as well as the consortia that are responsible for creating them. In this study, we explore some new but related issues: the strategic information updating decision-making process that firms use in determining their timing of entry into a standard-setting organization (SSO) that supports the formation and promulgation of business process standards. We evaluate alternative theories to characterize the micro-level decision-making processes that firms engage in, consistent with our observations of high-level co-opetition behavior in SSO entry timing. They include strategic information transmission and signaling, cheap talk and social learning, and information cascades and rational herd behavior theories. Our empirical analysis involves a 20-year panel data set from a leading industry SSO with over 101 global public firms. The results reveal that the entry timing of a firm changes as an industry SSO matures and strategic information updating occurs. We employ Bayesian econometric analysis to reveal how the hazard rates of firm entry adjusts over time. Our results show that there were temporal effects with respect to the period-wise likelihood of SSO entry. In the early years when the SSO was young and the process standard was still in its early stages of development, more changes were apparent that would have made information updating more valuable for firm SSO entry decision-making. With the passage of time though, the hazard rate for firm SSO entry stabilized, and the value of new information on the solidification of the proposed process standards diminished. Our evaluation of the alternate theoretical interpretations of observed entry behavior leads us to propose a set of five stages to characterize the evolution of a de facto process standard and to show how the theories map to the stages.