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Price Commitments in Standard Setting under Asymmetric Information

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Listed:
  • Boone, Jan

    (Tilburg University, School of Economics and Management)

  • Schuett, Florian

    (Tilburg University, School of Economics and Management)

  • Tarantino, E.

    (Tilburg University, School of Economics and Management)

Abstract

Many observers have voiced concerns that standards create essentiality and thus monopoly power for the holders of standard essential patents (SEPs). To address these concerns, Lerner and Tirole (2015) advocate structured 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 demand. 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. In the absence of price commitments, the SEP holder distorts the implementer's output downward in the low-demand state to reduce the high-demand type's information rent. Price commitments reduce this distortion.
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Suggested Citation

  • Boone, Jan & Schuett, Florian & Tarantino, E., 2019. "Price Commitments in Standard Setting under Asymmetric Information," Other publications TiSEM b39207f5-f27a-451d-9e2e-d, Tilburg University, School of Economics and Management.
  • Handle: RePEc:tiu:tiutis:b39207f5-f27a-451d-9e2e-d4cd9fe880dc
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    References listed on IDEAS

    as
    1. Rudi Bekkers & Christian Catalini & Arianna Martinelli & Cesare Righi & Timothy Simcoe, 2017. "Disclosure Rules and Declared Essential Patents," NBER Working Papers 23627, National Bureau of Economic Research, Inc.
    2. Klaus M. Schmidt, 2014. "Complementary Patents and Market Structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 23(1), pages 68-88, March.
    3. Mathias Dewatripont & Patrick Legros, 2013. "‘Essential’ Patents, FRAND Royalties and Technological Standards," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 913-937, December.
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    6. Josh Lerner & Haris Tabakovic & Jean Tirole, 2016. "Patent Disclosures and Standard-Setting," NBER Working Papers 22768, National Bureau of Economic Research, Inc.
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    8. Joseph Farrell & Timothy Simcoe, 2012. "Choosing the rules for consensus standardization," RAND Journal of Economics, RAND Corporation, vol. 43(2), pages 235-252, June.
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    More about this item

    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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