Retail Payment Systems
In the OIC Member Countries
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but not all of the OIC economies. Diffusion can be explained based on the conditions that
increase or decrease the likelihood that innovation will be adopted by members of a given
society. Usually, prices decline due to economies of scale. Consequently, the value that
potential consumers place on the good or service rises as more people adopt it. This
combination of scale-economy dynamics and ascending reservation prices can yield rapid
growth.
The acceptance of competing technologies or of the network effect constructs the path
observed in the formation of some equilibria (Farrell and Saloner, 1985). That path becomes a
dependency, although the achieved equilibrium is not necessarily the most desirable from a
social point of view. More seriously, random events may ‘lock us in’ to a path and an outcome
that is inferior to an alternative one that is available.
3.7 Standards and Coordination
Sometimes it helps if everyone uses the same product or service. In large economies there
may be a proliferation of standards, but in controlled smaller economies such as those that
prevail in the OIC, commonality may emerge, be encouraged, or enforced. This may drive
systems towards monopoly or standardisation. For example, when we buy a DVD player and
some DVDs, we encourage one specific industry standard, and thus more DVDs are put on the
market. When we throw out an 8-track tape player, we discourage that industry, and if enough
people do that, no more 8-track tapes are sold.
As a consequence, lock-in may occur on the ‘wrong’ technology because if, for whatever
reason, the wrong technology is chosen, it may be difficult to achieve the coordinated
movement of large numbers of users required for the ‘right’ technology to become the
standard. One problem is that defining standards can both encourage the spread of technology
and limit the development of new technology; so when to impose standards is a difficult
practical choice.
Unfortunately, what is rational for an individual may not be rational for the collectively, or vice
versa. Once accepted, a standard design can have a profound impact on both the direction of
further technical advance and the rate of that advance. When the marketplace decides that a
certain product is what it wants, then innovators have to start figuring out how to make that
peculiar innovation as effective as possible—and some will be better able than others. This
competition will shift from innovative approaches to product design and features to
competition based on cost and scale as well as on product performance.