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Innovation incentives in technical standards

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  • Llanes, Gastón

Abstract

I study the incentives to develop complementary technologies and include them in a technical standard. I find that the standardization process may lead to insufficient or excessive innovation. Patent pools increase innovation incentives, while price caps may increase or decrease them. Although both policies increase user surplus and welfare, price caps dominate (are dominated by) patent pools if the incremental value of technologies is small (large). Preventing the coordination of price caps guarantees that the socially-optimal policy is implemented in equilibrium. However, from innovators' perspective, patent pools are more profitable than price caps. This finding helps explain why patent pools are more prevalent than price caps, even though price caps may imply higher welfare. Cooperative R&D agreements increase innovation and welfare when technologies are highly complementary. The paper's results contribute to the discussion of the effects of recent policy changes in the VITA and IEEE standard-setting organizations.

Suggested Citation

  • Llanes, Gastón, 2024. "Innovation incentives in technical standards," International Journal of Industrial Organization, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:indorg:v:93:y:2024:i:c:s0167718724000018
    DOI: 10.1016/j.ijindorg.2024.103046
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    More about this item

    Keywords

    Technical standards; Innovation; Complementary technologies; Technology choice; Standard-setting organizations; Licensing; Hold-up; Licensing commitments; Price caps; Patent pools; Cooperation in R&D;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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