Complementary Patents and Market Structure

Schmidt, Klaus M.

doi:10.2139/ssrn.1277948

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Complementary Patents and Market Structure

35 Pages Posted: 6 Oct 2008

See all articles by Klaus M. Schmidt

Klaus M. Schmidt

Ludwig Maximilian University of Munich (LMU) - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: September 30, 2008

Abstract

Many high technology goods are based on standards that require access to several patents that are owned by different IP holders. We investigate the royalties chosen by IP holders under different market structures. Vertical integration of an IP holder and a downstream producer solves the double mark-up problem between these firms. Nevertheless, it may raise royalty rates and reduce output as compared to non-integration. Horizontal integration of IP holders (or a patent pool) solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always encourages entry and innovation.

Keywords: IP rights, complementary patents, standards, licensing, patent pool, vertical integration

JEL Classification: L15, O31, L24, O32, K11

Suggested Citation: Suggested Citation

Schmidt, Klaus M., Complementary Patents and Market Structure (September 30, 2008). Available at SSRN: https://ssrn.com/abstract=1277948 or http://dx.doi.org/10.2139/ssrn.1277948