Repeated interaction in standard setting

Pierre Larouche, Florian Schuett

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Standardization may allow the owners of standard‐essential patents to charge higher royalties than would have been negotiated ex ante. In practice, however, standard‐setting efforts are often characterized by repeated interaction and complementarities among technologies. These features give firms that contribute technology to standards both the ability and the incentive to avoid excessive royalties by threatening to exclude other technology contributors from future rounds of standardization if they charge royalties exceeding ‘fair, reasonable, and nondiscriminatory’ (FRAND) levels. We show that such an outcome can be sustained as a subgame‐perfect equilibrium of a repeated standard‐setting game and examine how the decision‐making rules of standard‐setting organizations (SSOs) affect the sustainability of FRAND royalties. Our analysis provides a novel justification for super‐majority requirements and other rules frequently adopted by SSOs.
Original languageEnglish
Pages (from-to)488-509
JournalJournal of Economics & Management Strategy
Volume28
Issue number3
Early online dateOct 2018
DOIs
Publication statusPublished - Oct 2019

Keywords

  • standardization
  • standard-essential patents
  • FRAND royalties
  • royalty stacking
  • repeated games

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