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Complementary Patents and Market Structure

Klaus M. Schmidt

Ludwig-Maximilians-Universität München - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

October 2008

CEPR Discussion Paper No. DP7005

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.

Number of Pages in PDF File: 39

Keywords: complementary patents, IP rights, licensing, patent pool, standards, vertical integration

JEL Classification: K11, L15, L24, O31, O32

Date posted: December 18, 2008  

Suggested Citation

Schmidt, Klaus M., Complementary Patents and Market Structure (October 2008). CEPR Discussion Paper No. DP7005. Available at SSRN: http://ssrn.com/abstract=1311129

Contact Information

Klaus M. Schmidt (Contact Author)
Ludwig-Maximilians-Universität München - Faculty of Economics ( email )
Ludwigstrasse 28
Munich, D-80539
+49 89 2180 3405 (Phone)
+49 89 2180 3510 (Fax)
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
HOME PAGE: http://www.CESifo.de
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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