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
JournalJournal of Economics & Management Strategy
DOIs
Publication statusE-pub ahead of print - Oct 2018

Fingerprint

Standardization
Sustainable development
Royalty
Repeated interaction
Charge
Repeated games
Incentives
Owners
Sustainability
Decision making
Complementarity
Justification
Patents

Keywords

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

Cite this

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title = "Repeated interaction in standard setting",
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.",
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Repeated interaction in standard setting. / Larouche, Pierre; Schuett, Florian.

In: Journal of Economics & Management Strategy, 10.2018.

Research output: Contribution to journalArticleScientificpeer-review

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AB - 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.

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