Price Commitments in Standard Setting Under Asymmetric Information

17 Pages Posted: 21 Mar 2019 Last revised: 22 Mar 2019

See all articles by Jan Boone

Jan Boone

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); TILEC

Florian Schuett

Tilburg Law and Economics Center (TILEC); Tilburg University - Center and Faculty of Economics and Business Administration

Emanuele Tarantino

University of Mannheim - Department of Economics; Tilburg Law and Economics Center (TILEC)

Date Written: March 20, 2019

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.

Keywords: standardization, standard-essential patents, price commitments, information asymmetry

JEL Classification: D82, L15, L24

Suggested Citation

Boone, Jan and Schuett, Florian and Tarantino, Emanuele, Price Commitments in Standard Setting Under Asymmetric Information (March 20, 2019). TILEC Discussion Paper No. 2019-004 . Available at SSRN: https://ssrn.com/abstract=3356605 or http://dx.doi.org/10.2139/ssrn.3356605

Jan Boone (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2399 (Phone)
+31 13 466 3042 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

TILEC ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Florian Schuett

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Center and Faculty of Economics and Business Administration ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Emanuele Tarantino

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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