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Assessing the Link between Standard Setting and Market Power

40 Pages Posted: 8 Mar 2010  

Anne Layne-Farrar

Charles River Associates; Northwestern University

Jorge Padilla

Compass Lexecon

Date Written: March 5, 2010

Abstract

Some policymakers, courts, and academics have expressed concerns that when a firm’s patents are incorporated into a standard, the inclusion can create market power for the patent holders that can then be abused when the standard is commercialized. This paper offers a critical assessment of that proposition. Our analysis has two aims: first, to better understand exactly how an SSO might confer market power on included patents and second, to move closer to an empirical understanding of the market power proposition. We create a dataset of patents named to voluntary standard setting organizations, as well as the patent pools that sometimes develop around such standards, with the goal of providing some suggestive measurements of the effect standardization might have on market power. As it is extremely difficult to measure market power directly, we rely on proxies capturing a patent’s importance or value. We find that some SSOs do appear to enhance some included patents’ importance, but most do not. Moreover, the effects change over time, across standards, and across patents. Thus, we conclude that, on average, inclusion in an SSO tends to enhance a patent’s value, but for any particular patent named to a particular standard a positive effect is not inevitable. Instead, a broad range of effects is possible, some even negative but most equal to zero.

Keywords: Standard Setting Organizations, Patents, Market Power

JEL Classification: L40, L44, L51, L14

Suggested Citation

Layne-Farrar, Anne and Padilla, Jorge, Assessing the Link between Standard Setting and Market Power (March 5, 2010). Available at SSRN: https://ssrn.com/abstract=1567026 or http://dx.doi.org/10.2139/ssrn.1567026

Anne Layne-Farrar (Contact Author)

Charles River Associates ( email )

1 South Wacker Drive
Suite 3400
Chicago, IL 60606
United States
312-377-9238 (Phone)

HOME PAGE: http://www.crai.com

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

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