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Price Commitments in Standard Setting under Asymmetric Information

Author

Listed:
  • Jan Boone
  • Florian Schuett
  • Emanuele Tarantino

Abstract

Standards may create market power for the holders of standard essential patents (SEPs). To address these concerns, the literature advocates price commitments, whereby SEP holders commit to the maximum royalty they would charge were their technology included in the standard. We consider a setting in which a technology implementer holds private information about profitability. In this setting, price commitments increase efficiency not only by curbing SEP holders' market power, but also by alleviating distortions in the design of the royalty scheme. We derive conditions under which price commitments can be implemented using a simple royalty cap as used in practice.

Suggested Citation

  • Jan Boone & Florian Schuett & Emanuele Tarantino, 2024. "Price Commitments in Standard Setting under Asymmetric Information," Journal of Industrial Economics, Wiley Blackwell, vol. 72(1), pages 3-19, March.
    • Handle: RePEc:bla:jindec:v:72:y:2024:i:1:p:3-19
    DOI: 10.1111/joie.12351
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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