Business Models and the Standard Setting Process

Abstract

This paper focuses on the role that business models play in cooperative standard setting. Certain business models, namely upstream specialists with no manufacturing of their own, have been vilified by some as patent trolls bent on exploiting the standard setting process. This view ignores important trends in specialization and industry structure and the social benefits that attend them. In particular, over the last few decades, disaggregation in the production process has been prevalent in a number of industries, particularly in the high technology sector. Specialization brings with it a number of benefits, but also complicates business interactions, including licensing. As business models have become more diversified in key industries, business model diversity among standard setting participants has led to inevitable tension.

The analysis of business models presented here illustrates how non‐integrated production can benefit from “comparative advantage”, where entities focus on what they do best, which results in higher quality products, increased competition, and increased consumer choice. It also shows, however, that different business models – like design versus manufacturing, or non‐integrated versus integrated – can mean divergent incentives among participants and therefore more disputes among them, which can slow down or even derail the standard setting process, to the detriment of consumers. The appropriate competition policy recognizes the opposing forces at work in modern cooperative standard setting, seeking balance between them to maximize consumer welfare.

Keywords: Standard Setting, Business Models, High Technology, Antitrust, Regulation

JEL Classification: L11, L23, L44, L52, O34