I study the incentives to develop complementary technologies and include them in a technical standard. I find that the standardization process may lead to insufficient or excessive innovation. Patent ...pools increase innovation incentives, while price caps may increase or decrease them. Although both policies increase user surplus and welfare, price caps dominate (are dominated by) patent pools if the incremental value of technologies is small (large). Preventing the coordination of price caps guarantees that the socially-optimal policy is implemented in equilibrium. However, from innovators' perspective, patent pools are more profitable than price caps. This finding helps explain why patent pools are more prevalent than price caps, even though price caps may imply higher welfare. Cooperative R&D agreements increase innovation and welfare when technologies are highly complementary. The paper's results contribute to the discussion of the effects of recent policy changes in the VITA and IEEE standard-setting organizations.
•Standardization may lead to insufficient or excessive innovation.•The formation of a patent pool or the requirement to set price caps improve welfare.•Patent pools always increase innovation, while price caps may increase or decrease it.•Price caps (pools) yield higher welfare if the incremental value of technologies is small (large).•Preventing the coordination of price caps guarantees that the socially-optimal policy is implemented in equilibrium.
I study the incentives to open technologies in imperfectly competitive markets with user innovation. Firms may choose to open part of their knowledge or private information so that it becomes freely ...accessible to users. Openness decisions are governed by a trade‐off between collaboration and appropriability: by becoming more open, a firm encourages user innovation but hampers its ability to capture value. I find that large firms are less open and invest more in product development than small firms, and that firms react to greater openness from rivals by becoming more open. I also show that compatibility and spillovers have a negative effect on openness, and that firms become more open as the number of competitors increases.
I study licensing and technology choice in standard setting. I find that there may be inefficient adoption of technologies, even when firms commit to a maximum royalty or price cap for the use of ...their patents. When firms interact repeatedly to develop standards, a commitment to set fair, reasonable and non-discriminatory (FRAND) royalty fees may lead to more efficient technologies and higher surplus for all parties. This result can explain why standard-setting organizations favor FRAND commitments over more structured licensing commitments—such as price caps—and why there are been relatively few cases of hold-up in practice, even though such opportunistic behavior has been a primary cause of concern for innovation economists.
We study competitive interaction between a profit-maximizing firm that sells software and complementary services, and a free open-source competitor. We examine the firm's choice of business model ...between the
proprietary
model (where all software modules are proprietary), the
open-source
model (where all modules are open source), and the
mixed-source
model (where some-but not all-modules are open). When a module is opened, users can access and improve the code, which increases quality and value creation. Opened modules, however, are available for others to use free of charge. We derive the set of possibly optimal business models when the modules of the firm and the open-source competitor are compatible (and thus can be combined) and incompatible, and show that (i) when the firm's modules are of high (low) quality, the firm is more open under incompatibility (compatibility) than under compatibility (incompatibility); (ii) firms are more likely to open substitute, rather than complementary, modules to existing open-source projects; and (iii) there may be no trade-off between value creation and value capture when comparing business models with different degrees of openness.
This paper was accepted by Bruno Cassiman, business strategy.
We study the efficiency of the standard‐setting process when standards result from competition between groups of firms sponsoring different technologies. We show that ex ante agreements may decrease ...welfare in the case of standards wars: Even though industry profits are larger with ex ante agreements, welfare is not necessarily larger, because the interests of firms and society may not be aligned. This result contrasts with the findings of previous works studying de jure monopoly standards. Including adopters in the standard‐setting process may restore the efficiency of ex ante agreements.
Private contracts in two-sided platforms Llanes, Gastón; Ruiz-Aliseda, Francisco
The Rand journal of economics,
12/2021, Letnik:
52, Številka:
4
Journal Article
Recenzirano
We study a platform that signs private contracts with sellers. Contractual secrecy implies interrelated hold-up problems for buyers and sellers that reduce platform profits and welfare. By increasing ...its control over sellers' prices, the platform is able to increase price transparency and commit to not behaving opportunistically, which increases profits and welfare. Thus, policy prescriptions for dealing with contractual secrecy are reversed in the case of two-sided platforms. We also find a platform may benefit from an erosion of its market power on one side of the market because this erosion may raise the surplus it offers the other side.
We study cooperation dynamics in repeated games with Markovian private information. After any history, signaling reveals information that helps players coordinate their future actions, but also makes ...the problem of coordinating current actions harder. In equilibrium, players may play aggressive or uncooperative actions that signal private information and partners tolerate a certain number of such actions. We discuss several applications of our results: We explain the cycles of cooperation and conflict observed in trench warfare during World War I, show that price leadership and unilateral price cuts can be part of an optimal signaling equilibrium in a repeated Bertrand game with incomplete information, and show that communication between cartel members may be socially efficient in a repeated Cournot game. Finally, we show that the welfare losses disappear as the persistence of the process of types increases and the interest rate goes to zero.
We present a dynamic model where the accumulation of patents generates an increasing number of claims on sequential innovation. We compare innovation activity under three regimes—patents, no-patents, ...and patent pools—and find that none of them can reach the first best. We find that the first best can be reached through a decentralized tax-subsidy mechanism, by which innovators receive a subsidy when they innovate, and are taxed with subsequent innovations. This finding implies that optimal transfers work in the exact opposite way as traditional patents. Finally, we consider patents of finite duration and determine the optimal patent length.
We study incentives to invest in platform quality in open‐source and proprietary two‐sided platforms. Open platforms have open access, and developers invest to improve the platform. Proprietary ...platforms have closed access, and investment is done by the platform owner. We present five main results. First, open platforms may benefit from limited developer access. Second, an open platform may lead to higher investment than a proprietary platform. Third, opening one side of a proprietary platform may lower incentives to invest in platform quality. Fourth, the structure of access prices of the proprietary platform depends on (i) how changes in the number of developers affect the incentives to invest in the open platform, and (ii) how investment in the open platform affects the revenues of the proprietary platform. Finally, a proprietary platform may benefit from higher investment in the open platform. This result helps to explain why the owner of a proprietary platform such as Microsoft has chosen to contribute to the development of Linux.
We present a model of standard setting and patent‐pool formation. We study the effects of alternative standard‐setting and pool‐formation rules on technology choice, prices, and welfare. We find ...three main results. First, we show that allowing patent pools may reduce welfare when standards are negotiated and patent pools need to be ex post incentive compatible. Second, we show that ranking combinations of standard‐setting and pool‐formation rules in welfare terms when patent pools need to be ex post incentive compatible is not possible. Third, we show that allowing firms to sign ex ante agreements regarding pool participation dominates—in terms of welfare—any other policy rule. This policy does not require the standard‐setting organization to have information on patent ownership, the terms of license agreements, or the value added of patents.
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