Price Commitments in Standard Setting under Asymmetric Information

Jan Boone, Florian Schuett, E. Tarantino

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages17
Volume2019-009
Publication statusPublished - 21 Mar 2019

Publication series

NameCentER Discussion Paper
Volume2019-009

Keywords

  • standardization
  • standard-essential patents
  • price commitments
  • Information asymmetry

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    Boone, J., Schuett, F., & Tarantino, E. (2019). Price Commitments in Standard Setting under Asymmetric Information. (CentER Discussion Paper; Vol. 2019-009). CentER, Center for Economic Research.