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Complementary Patents and Market Structure

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Author Info
Klaus M. Schmidt () (Department of Economics, University of Munich, Ludwigstrasse 28, D-80539 Muenchen, Germany)
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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Publisher Info
Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers 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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Related research
Keywords: IP rights; complementary patents; standards; licensing; patent pool; vertical integration;

Find related papers by JEL classification:
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
K11 - Law and Economics - - Basic Areas of Law - - - Property Law

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    Other versions:
  6. Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February. [Downloadable!] (restricted)
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  9. Mathias Dewatripont & Patrick Legros, 2008. ""Essential" Patents, FRAND Royalties and Technological Standards," ECARES Working Papers 2008_010, Université Libre de Bruxelles, Ecares. [Downloadable!]
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  10. Sung-Hwan Kim, 2004. "Vertical Structure and Patent Pools," Review of Industrial Organization, Springer, vol. 25(3), pages 231-250, 07. [Downloadable!] (restricted)
  11. Reiko Aoki; Sadao Nagaoka, 2004. "The Consortium Standard and Patent Pools," Econometric Society 2004 Far Eastern Meetings 788, Econometric Society.
    Other versions:
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