Game Theory and Open Standards

Game Theory and Open Standards

A reflection on the complex standardization process from a fresh perspective

Open standards bring many benefits to the industrial community, mainly reducing friction in multiple areas and increasing the overall safety. Moreover, standards are expected to bring broader efficiency and lower ownership costs, while providing a better ROI for many of the actors. Then, pursuing standards convergence and harmonization seems that makes sense.

Today, with the ongoing Industry 4.0 deployment, IT/OT convergence and IoT spread out, the user’s dream is just to have a powerful but reduced set of universal and open standard protocols, in order to achieve maximum interoperability, portability and modularity for industrial assets. Just take as an example the wide IoT collection of protocols to connect edge, cloud and sensors. The mantra for the user, addressed to the industrial suppliers, could be stated as: “simplify and avoid duplication”.

But the development of the standards is not a straightforward business. During the involved process of design and coordination, different actors and paradigms converge to the same table. As actors, we count equipment suppliers, integrators, users, institutions, associations, consortiums and so on.

In the industrial arena, many vendors are integrated into one or more standard bodies (ISA, IEEE, etc), although sometimes, with ambivalent positions: they contribute to one open standard development promoted by an international body but, in the meantime, they continue to push their own proprietary standard. Of course, there are different grades for a proprietary standard, from one that is fully and closely owned by the company to another that is given open to an international body or associations allowing other companies to add-in.

In some cases, the vendor’s proprietary standard became a market barrier. Even more, its business model could depend much on its proprietary standard (and there is some reason to delay moving to other pastures). Of course, they try to maximize the profits, something very legitimate anyway.

But in some instances, however, the stakeholders are caged within a particular proprietary standard (end-users and system integrators), without the choice to integrate the best options found in the market for its process and equipment application.

At any rate, getting standards done is not an easy task. It requires a lot of patience and some dealing skills, but the speed to get it finished today seems more relevant than years ago.

Putting Game Theory to work

Now, let us look at this picture from a different perspective, applying game theory to this topic. In essence, game theory is an ideal tool for analyzing one scenario where independent groups are interacting, relatively distrustfully between them and showing limited cooperation. Suppose that the involved participants are manufacturers of automation and process equipment or some organizations that are aligned with their respective topic interests. The Nash Equilibrium happens when a situation is reached, that neither of these participants can benefit significantly from one unilateral action. At this particular point, they decide to keep their strategy going on, without significant changes. This is the case for the well-known prisoner’s dilemma, where the Nash equilibrium is reached when both prisoners decide to confess its crimes, in order to minimize the potential worse sanctions waiting for their conduct. Of course, the no confession of the crime would be the best option for both, but they can’t rely trustingly in each other to follow that strategy.

Nash Equilibrium

The attached graphic shows a simple example with two different equipment manufacturers, involved in one particular open standard charter. Everyone owns or can influence his vendor’s standard. In this process, each player tries to find the optimal strategy that will work best for him. In fact, they look for the better balance between the perceived profits versus the level of support to the new proposed universal standard (therefore favoring greater standards’ concentration).

Of course, this situation is not static forever. As the time passes, if the balance between cooperation and competition change, the Nash Equilibrium’s point will shift and the market entry barriers will move.

In addition, under some Nash Equilibrium conditions, we could be far away from achieving a situation with the greatest benefits for the end-users as well as for other industrial community members.

Kantian Equilibrium

However, according to some economists, there is another interesting option to consider: the Kantian Equilibrium (see graphic). Moving away from the Nash Equilibrium, could benefit a bigger number of users as well as a large swathe of vendors, because the game is not necessarily a zero-sum. With Nash proposal, when one player makes a change, he tries to maximize his own profits, assuming the others’ no change in position. With Kant, the player also tries to improve his own, but in a broader sense, giving room to improve positions for other actors at the same time.

With Kant, there will be more cooperation between the actors. The benefits will be shared by a greater number of shareholders (crucially, the users among them).

Moving to a Nash-Kant approach

There is even another alternative in game theory favored by some authors. It points towards something they call Nash-Kant equilibrium, a sort of intermediate solution between both models. How to get there?

The answer to that question in our example is not so obvious. One suggestion goes for empowering the user within different organizations that convey the standardization processes (more users to vote or a more powerful vote for the user inside the related standard organization). Other alternative could be to promote more influential user’s lobbies that the current ones.

Another option is that one or more users could lead a particular standard process, even outside the standard body.

Conclusion

At the current technological development pace, there is a case for trying different approaches to increase the open standard’s concentration, in order to reduce complexity and facilitate the implementation of systems.

Perhaps the user would need to have more influence, to induce a more seamless and frictionless technology, based in open standards. International bodies like ISA, IEEE or NAMUR, just to name some, are key to preserve the best Nash-Kant balance, if we allow them to.

Game theory offers a different perspective for a complex standard process with no easy solutions. Sometimes the state of affairs slowly swings between Nash and Kant equilibriums, following the pendulum law through the times. Curiously, John Nash made one statement that seems favoring the Kantian side: “The best for the group comes when everyone in the group does what’s best for himself and the group”.

 

This article was written by Xavier Alcober is a Consultant Engineer for Process Automation. He has over 30 years experience in process control systems design as well as different technical manager posts. He has written several technical articles about this matter.