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

KU Leuven - Department of Economics; Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Emanuele Tarantino

Luiss Guido Carli University; Einaudi Institute for Economics and Finance (EIEF)

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

KU Leuven - Department of Economics ( email )

Leuven
Belgium

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Emanuele Tarantino

Luiss Guido Carli University ( email )

Via O. Tommasini 1
Rome, Roma 00100
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

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