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A Model of Forum Shopping, with Special Reference to Standard Setting Organizations

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  • Josh Lerner
  • Jean Tirole

Abstract

Owners of intellectual property or mere sponsors of an idea (e.g., authors, security issuers, sponsors of standards) often need to persuade potential buyers or adopters of the worth of their property or idea. To this purpose, they often resort to more or less independent certifiers. This paper analyzes the strategic choice of certifiers in rival and non-rival situations in a three-stage game. First, the owner/sponsor selects among potential certifiers. Certifiers differ in their degree of sympathy towards the owner/sponsor's interests relative to their concern for quality delivered to the users. Second, the certifier studies the offering and renders an opinion. The opinion consists of an endorsement (or lack thereof) and, possibly, some further demands for changes involving prices or offering characteristics. Third, the final users adopt or buy as a function of their perceived utility. In this context, the choice of certifier involves a basic trade-off: trying a tougher certifier reduces the probability of a positive opinion, but makes the users more likely to adopt the offering or willing to pay more for it in case of a positive opinion by the certifier. The paper first analyzes the sponsor's choices of certifier and design, as well as social preferences regarding these choices. More attractive standards lead to more friendly certification and fewer concessions to users. Regulation cannot improve on private choices in case of mildly attractive standards, and partial regulation reduces social welfare in case of attractive standards. Furthermore, the sponsor can costlessly delegate the design choice to the certifier when she can have her preferred choice of certifier, but must make more concessions to users than she would want to if the spectrum of certifiers is limited. The paper then extends the basic model to multiple categories of users, to the downstream presence of the sponsor, and to within-user-group network externalities. Finally, it studies strategic forum shopping by sponsors of competing standards.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10664.

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Date of creation: Aug 2004
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Publication status: published as Lerner, Josh and Jean Tirole. "A Model of Forum Shopping." American Economic Review 96 (September 2006): 1091-1113.
Handle: RePEc:nbr:nberwo:10664

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  1. Dessein, Wouter, 2002. "Authority and Communication in Organizations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 69(4), pages 811-38, October.
  2. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. " Investment Bank Reputation, Information Production, and Financial Intermediation," Journal of Finance, American Finance Association, American Finance Association, vol. 49(1), pages 57-79, March.
  3. Caillaud, B. & Tirole, J., 1999. "Party governance and ideological bias," European Economic Review, Elsevier, Elsevier, vol. 43(4-6), pages 779-789, April.
  4. Aghion, Philippe & Tirole, Jean, 1997. "Formal and Real Authority in Organizations," Scholarly Articles 4554125, Harvard University Department of Economics.
  5. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers, Financial Markets Group dp409, Financial Markets Group.
  6. An, Mark Yuying, 1995. "Logconcavity versus Logconvexity: A Complete Characterization," Working Papers, Duke University, Department of Economics 95-03, Duke University, Department of Economics.
  7. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  8. Admati, Anat R & Pfleiderer, Paul, 1994. " Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance, American Finance Association, American Finance Association, vol. 49(2), pages 371-402, June.
  9. Alan D. Morrison & Lucy White, 2004. "Financial Liberalisation and Capital Regulation in Open Economies," OFRC Working Papers Series, Oxford Financial Research Centre 2004fe10, Oxford Financial Research Centre.
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Cited by:
  1. Josh Lerner & Jean Tirole, 2004. "The Economics of Technology Sharing: Open Source and Beyond," NBER Working Papers 10956, National Bureau of Economic Research, Inc.
  2. Leiponen, Aija, 2005. "Clubs and Standards: The Role of Industry Consortia in Standardization of Wirelelss Telecommunications," Discussion Papers, The Research Institute of the Finnish Economy 997, The Research Institute of the Finnish Economy.
  3. Chiao, Benjamin & Lerner, Josh & Tirole, Jean, 2007. "The Rules of Standard Setting Organizations: An Empirical Analysis," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6141, C.E.P.R. Discussion Papers.
  4. Gaudeul, Alexandre & Jullien, Bruno, 2005. "E-Commerce, Two-Sided Markets and Info-Mediation," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 380, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Nicolas Quérou, 2005. "Obtaining a Unique, Efficient Norm Through Negotiation by Linking Porposals," Working Papers, LAMETA, Universtiy of Montpellier 05-02, LAMETA, Universtiy of Montpellier, revised Jan 2005.
  6. David Gill & Daniel Sgroi, 2005. "Sequential Decisions with Tests," Economics Series Working Papers, University of Oxford, Department of Economics 242, University of Oxford, Department of Economics.
  7. Rick Harbaugh & John W. Maxwell & Beatrice Roussillon, 2006. "The Groucho Effect of Uncertain Standards," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2006-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  8. Argenton, Cédric, 2005. "Producers bargaining over a quality standard," Working Paper Series in Economics and Finance, Stockholm School of Economics 618, Stockholm School of Economics, revised 18 Jan 2006.

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