Law and Information

The second case studies in our interop series looks into Bar Code interoperability, a great case that highlights the aspects inter-industry cooperation as well as collective action problems.  The case was researched by incoming Berkman student fellow Matthew B. Becker.  He submitted the following blog post as an introduction to the case:

When approaching the subject of interoperability, bar codes were an immediate interest of mine. Practically ubiquitous today, bar codes can be found on nearly every package, and are increasingly common in many other applications beyond retail. It is precisely this prevalence that made me wonder how such a technology came to be implemented so widely.

In hindsight, the value of bar codes seems obvious, and it can be difficult to imagine that there might have been a time when their adoption was anything but certain. However, as this study demonstrates, the history was far more complex. Both retailers and manufacturers recognized that implementing bar codes could reduce costs and increase the efficiency of their operations, but only if they were adopted by the majority of manufacturers and a very large number of retailers. As such, few businesses wanted to incur the costs of implementation without assurance that there would be a return on their investment, and for a time, bar codes were thought to have failed. This issue has been called a “chicken-and-egg” adoption problem, where there is a question as to “who should go first.” Similarly, it might also be considered a collective action problem, as it demonstrates a situation where the common interests of all parties were impeded by the immediate concerns and actions of the individuals themselves.

Collective action problems appear to be quite common when exploring the subject of interoperability, which by nature requires the participation of various entities. What makes this example particularly interesting is that the collective action problem was solved without significant government intervention. Instead, the organized efforts of an inter-industry consortium of retailers and manufacturers spearheaded the effort to create and popularize bar codes, which were then furthered by adoption outside of the point-of-sale retail context (an event that was not immediately anticipated), as well as unique historical circumstances that made adoption an easier choice for most manufacturers. Finally, large retailers used their considerable weight to coerce suppliers into implementation.

There is an important connection to another of our case studies that is worth mentioning: bar code adoption was essential to the development of electronic data interchange (EDI), as it allowed computers to “recognize” items that were sold, facilitating the use of accurate and automatic sales histories and inventories. For similar reasons, the adoption of both bar codes and EDI are intrinsically tied to the subsequent rise of big-box retailers, which required efficient and (largely) automated purchasing and re-stocking. As such, bar codes provide an example of an interoperable technology that resulted not only in efficiency gains, but also helped facilitate the restructuring of an entire industry.

To read the full case study: Interoperability Case Study: The Bar Code/UPC