This paper, authored by Joseph Farrell and Garth Saloner, explores the dynamics of standardization, compatibility, and innovation in an industry. The authors argue that while standardization and compatibility can bring significant benefits, such as network externalities and reduced costs, they can also lead to "excess inertia" where firms are reluctant to adopt new technologies, even when it is socially beneficial. The paper presents a model where firms sequentially decide whether to switch to a new technology, and analyzes the conditions under which all firms will switch, all will remain with the old technology, or there will be a mix of both. The analysis is extended to scenarios with incomplete information and communication, showing that communication can help eliminate "asymmetric" inertia where firms with different preferences for the new technology fail to adopt it. The paper also discusses the strategic use of technology adoption by dominant firms to manipulate market structure, leading to inefficient outcomes. Finally, the authors suggest several directions for further research, including the complexity of standards, the trade-offs between variety and standardization, and the role of timing in adoption decisions.This paper, authored by Joseph Farrell and Garth Saloner, explores the dynamics of standardization, compatibility, and innovation in an industry. The authors argue that while standardization and compatibility can bring significant benefits, such as network externalities and reduced costs, they can also lead to "excess inertia" where firms are reluctant to adopt new technologies, even when it is socially beneficial. The paper presents a model where firms sequentially decide whether to switch to a new technology, and analyzes the conditions under which all firms will switch, all will remain with the old technology, or there will be a mix of both. The analysis is extended to scenarios with incomplete information and communication, showing that communication can help eliminate "asymmetric" inertia where firms with different preferences for the new technology fail to adopt it. The paper also discusses the strategic use of technology adoption by dominant firms to manipulate market structure, leading to inefficient outcomes. Finally, the authors suggest several directions for further research, including the complexity of standards, the trade-offs between variety and standardization, and the role of timing in adoption decisions.