Complementary Patents and Market Structure
Klaus M. Schmidt
Ludwig Maximilian University of Munich - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)
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
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