Complementary Patents and Market Structure
AbstractMany high technology goods are based on standards that require several essential patents owned by different IP holders. This gives rise to a complements and a double mark-up problem. We compare the welfare effects of two different business strategies dealing with these problems. 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 solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always benefits from entry and innovation
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Bibliographic InfoPaper 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 274.
Date of creation: Sep 2009
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Other versions of this item:
- Schmidt, Klaus M., 2008. "Complementary Patents and Market Structure," CEPR Discussion Papers 7005, C.E.P.R. Discussion Papers.
- Schmidt, Klaus M., 2008. "Complementary Patents and Market Structure," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 249, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L4 - Industrial Organization - - Antitrust Issues and Policies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-13 (All new papers)
- NEP-COM-2010-03-13 (Industrial Competition)
- NEP-IND-2010-03-13 (Industrial Organization)
- NEP-INO-2010-03-13 (Innovation)
- NEP-IPR-2010-03-13 (Intellectual Property Rights)
- NEP-TID-2010-03-13 (Technology & Industrial Dynamics)
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