The Format Bet

The situation

Your company has just launched a new home video format, and a rival electronics maker has launched a competing format at almost the same time. The two formats cannot play each other's tapes. Your engineers insist your format has the better picture quality. Your sales team is more worried about a different question entirely: which format video rental stores will actually decide to stock, since whichever format has more movies available on shelf is the one shoppers will buy a player for, regardless of picture quality.

Background

Nobody benefits from two incompatible formats splitting the market forever. Everyone, manufacturers, retailers, and shoppers, wants a single winner to emerge quickly. The only real disagreement is whose format that winner should be, and your company controls a lever the picture-quality argument does not: whether to license your format widely to other manufacturers or keep it exclusive.

What this reveals

In a standards war, recruiting allies matters more than winning the technical argument

Everyone wanted a single shared standard more than they wanted their personally preferred one, which meant the format that attracted the most manufacturing allies could tip the whole market in its favor, regardless of which format's engineers had the stronger technical case.

How to counter it: When you are competing to become the shared standard, ask who else benefits from joining your side and make it easy and profitable for them to do so, rather than relying on the strength of your product alone to win converts.

A question to sit with

Have you seen a technically weaker option win widespread adoption anyway because it made itself easier to join? What tipped the balance?

Frequently asked questions

What game theory concept does The Format Bet illustrate?

The Format Bet illustrates Battle of the Sexes. In a standards battle, recruiting the most allies can beat having the better product.

What is the situation in The Format Bet?

Your company has just launched a new home video format, and a rival electronics maker has launched a competing format at almost the same time. The two formats cannot play each other's tapes. Your engineers insist your format has the better picture quality.

What does The Format Bet reveal about how people decide?

In a standards war, recruiting allies matters more than winning the technical argument. Everyone wanted a single shared standard more than they wanted their personally preferred one, which meant the format that attracted the most manufacturing allies could tip the whole market in its favor, regardless of which format's engineers had the stronger technical case.

How do you avoid the trap in The Format Bet?

When you are competing to become the shared standard, ask who else benefits from joining your side and make it easy and profitable for them to do so, rather than relying on the strength of your product alone to win converts.

What is the research behind The Format Bet?

Nobody benefits from two incompatible formats splitting the market forever. Everyone, manufacturers, retailers, and shoppers, wants a single winner to emerge quickly. The only real disagreement is whose format that winner should be, and your company controls a lever the picture-quality argument does not: whether to license your format widely to other manufacturers or keep it exclusive.

How long does The Format Bet take to play?

About 6 min, at core difficulty, across 3 decision points. It runs in your browser with no account and no sign-in.

Keep exploring

More Historical Perspective scenarios, or browse all scenarios. New to this? Start with how DecisionPlay works or the game theory glossary.

Topics: battle-of-sexes, network-effects, standards, history