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Lionel dubbed its new standard Standard Gauge and trademarked the name. Lionel's Standard Gauge should not be confused with Standard Gauge for real railroads, or the later 1:64 scale S gauge popularized by American Flyer after World War II. Due to the trademark, Lionel's competitors mostly called their similar offerings Wide Gauge.

Historians disagree on Lionel's reason for creating Standard Gauge, giving two stories. One story is that Lionel misread the specifications for Märklin's European Gauge 2, measuring the distance between the rails centres rather than between the insides of the rails, thus accidentally making a slightly larger and incompatible standard. The other story is that the change was a deliberate effort to lock out European competition by creating incompatible trains. The latter is more likely as they should have noticed that gauge 2 was actually 2"!

Whatever the reason for its initial creation, Lionel's Standard Gauge caught on at the expense of 1 Gauge. No fewer than four American competitors adopted Lionel's gauge: IvesThe Ives Manufacturing Company an American toy manufacturer from 1868 to 1932, was the largest manufacturer of toy trains in the United States from 1910 until 1924, when Lionel Corporation overtook it in sales. Ives was founded in Plymouth, Connecticut by in 1921Events January 2 The first religious radio broadcast ( KDKA AM in Pittsburgh, Pennsylvania) January 2 Spanish liner Santa Isabel sinks off Villa Garcia 244 dead January 2 DeYoung Museum in Golden Gate Park San Francisco opens. January 20 Republic of Turke, BoucherThe Boucher Manufacturing Company was an American toy company that specialized in toy boats and toy trains. It is best remembered today as the last of the manufacturers of Standard gauge/ Wide gauge trains until the much smaller McCoy Manufacturing revive in 1922Events January 7 Dali Eireann ratifies the Anglo-Irish Treaty by 64-57 votes. January 10 Arthur Griffith is elected President of Dail Eireann January 11 First successful insulin treatment of diabetes. January 12 British government releases Irish prisoners, DorfanDorfan was an American toy company based in Newark, New Jersey, specializing in O gauge and Wide gauge toy trains. It was founded in 1924 by Milton and Julius Forcheimer, two immigrants from Nuremberg, Germany, whose family was involved in the production in 1924Centuries: 19th century 20th century 21st century Decades: 1870s 1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s Years: 1919 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 See also 1924 in aviation 1924 in film 1924 in literature 1924 in mu, and American Flyer in 1925Centuries: 19th century 20th century 21st century Decades: 1870s 1880s 1890s 1900s 1910s 1920s 1930s 1940s 1950s 1960s 1970s Years: 1920 1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 See also 1925 in aviation 1925 in film 1925 in literature 1925 in mu. While all the manufacturers' track was the same size and the trains and buildings approximately the same scale, the couplers remained incompatible, making it impossible to mix train cars from different manufacturers without modification.

The increased number of manufacturers seemed to give legitimacy to Lionel's gauge, and because the boom of the 1920s made large toy trains affordable, Wide Gauge had its heyday in the mid-1920s only to virtually disappear during the Great DepressionThe Great Depression was a global economic slump that began in the United States following Black Thursday, the Wall Street panic of October 1929. On October 24, 1929, share prices on Wall Street collapsed catastrophically, setting off a chain of bankruptc. Ives filed for bankruptcy in 1928 and its offerings were off the market by 1932. American Flyer discontinued its Wide Gauge trains in 1932. Dorfan went out of business in 1934. Lionel discontinued Standard gauge trains in 1940. Boucher, the last of the Standard/Wide gauge manufacturers, folded in 1943.

However, Standard gauge managed to survive in South America. Doggenweiler , a firm in Chile, produced a small quantity trains in Standard gauge and Gauge 2 from 1933 until about 1960. Standard gauge also was revived in the United States in the 1950s by the small firm of McCoy Manufacturing, who produced trains of original design well into the 1990s. In the 1970s, Williams Electric Trains began producing and marketing reproductions of Lionel trains of the 1920s and 1930s. This line was later marketed by Lionel itself, and is now produced and marketed by MTH Electric Trains.

A number of smaller manufacturers, mostly one- and two-person operations, hand-build and market reproductions of very early Standard gauge trains.