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Complementary Patents and Market Structure

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  • Schmidt, Klaus M.

Abstract

Many high technology goods are based on standards that require access to several patents that are owned by different IP holders. We investigate the royalties chosen by IP holders under different market structures. Vertical integration of an IP holder and a downstream producer solves the double mark-up problem between these firms. Nevertheless, it may raise royalty rates and reduce output as compared to non-integration. Horizontal integration of IP holders (or a patent pool) solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always encourages entry and innovation.

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Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 249.

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Date of creation: Sep 2008
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Handle: RePEc:trf:wpaper:249

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  1. Lerner, Josh & Tirole, Jean, 2003. "Efficient Patent Pools," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 211, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Carl Shapiro, 2003. "Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard-Setting," Law and Economics, EconWPA 0303005, EconWPA.
  3. Mathias Dewatripont & Patrick Legros, 2008. ""Essential" Patents, FRAND Royalties and Technological Standards," Working Papers ECARES, ULB -- Universite Libre de Bruxelles ECARES 2008-010, ULB -- Universite Libre de Bruxelles.
  4. Felix Höffler & Sebastian Kranz, 2007. "Legal Unbundling can be a Golden Mean between Vertical Integration and Separation," Bonn Econ Discussion Papers, University of Bonn, Germany bgse15_2007, University of Bonn, Germany.
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  6. Wang, X Henry & Yang, Bill Z, 1999. "On Licensing under Bertrand Competition," Australian Economic Papers, Wiley Blackwell, Wiley Blackwell, vol. 38(2), pages 106-19, June.
  7. Aoki, Reiko & Nagaoka, Sadao, 2004. "The Consortium Standard and Patent Pools," Discussion Paper, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University 222, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  8. Sung-Hwan Kim, 2004. "Vertical Structure and Patent Pools," Review of Industrial Organization, Springer, Springer, vol. 25(3), pages 231-250, 07.
  9. Novshek, William, 1985. "On the Existence of Cournot Equilibrium," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(1), pages 85-98, January.
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Cited by:
  1. Rey, Patrick & Salant, David, 2012. "Abuse of Dominance and Licensing of Intellectual Property," TSE Working Papers, Toulouse School of Economics (TSE) 12-297, Toulouse School of Economics (TSE).
  2. Noriaki Matsushima & Tomomichi Mizuno, 2009. "Vertical Separation as a Defense against Strong Suppliers," ISER Discussion Paper, Institute of Social and Economic Research, Osaka University 0755, Institute of Social and Economic Research, Osaka University.
  3. Arijit Mukherjee, 2013. "Patent pool under endogenous technology choice," Discussion Paper Series, Department of Economics, Loughborough University 2013_07, Department of Economics, Loughborough University, revised Jul 2013.
  4. Dequiedt, Vianney & Versaevel, Bruno, 2013. "Patent pools and dynamic R&D incentives," International Review of Law and Economics, Elsevier, Elsevier, vol. 36(C), pages 59-69.

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