This paper shows - in contrast to the literature on excess capacity - that capacity commitment can improve market allocations, if network externalities are present. Intertemporal network externalities can lead to a large degree of misallocation in simple markets. However, the attempt of firms to appropriate the potential surplus from standardization generates new market strategies as e.g. capacity commitment that can mitigate the standardization problem. In this context, capacity does not incorporate the detrimental effects stated in the excess capacity literature, but guarantees the functioning of markets in the interest of collective rationality. The relevance of this strategy in markets with network externalities is illustrated by the emergence of VCR standards.
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