We thank Guillermo Caruana, Shane Greenstein, Gaston Llanes, Mario Mariniello, Carlos Ponce, Armin Schmutzler, Dan Spulber, and participants at the XI CEPR Conference on Applied Industrial Organization, the 2010 CRESSE conference, and the 2013 Searle Center Roundtable on Technology, Standards, Innovation and Market Coordination for useful comments. Financial support from Qualcomm for earlier drafts of this paper is gratefully acknowledged. Gerard Llobet acknowledges financial support from the Spanish Ministry of the Economy and Competitiveness through the ECO2011-26308 project. The ideas and opinions in this paper, as well as any errors, are exclusively of the authors.
Payments and Participation: The Incentives to Join Cooperative Standard Setting Efforts
Article first published online: 7 JAN 2014
© 2014 Wiley Periodicals, Inc.
Journal of Economics & Management Strategy
Special Issue: Innovation Economics
Volume 23, Issue 1, pages 24–49, Spring 2014
How to Cite
Layne-Farrar, A., Llobet, G. and Padilla, J. (2014), Payments and Participation: The Incentives to Join Cooperative Standard Setting Efforts. Journal of Economics & Management Strategy, 23: 24–49. doi: 10.1111/jems.12046
- Issue published online: 7 JAN 2014
- Article first published online: 7 JAN 2014
Formal, cooperative standard setting continues to grow in importance for the global economy. And as standards become more pervasive, the stakes rise for all participants. It is not surprising then that many standards are covered by intellectual property rights, that battles over the licensing of those rights have reached a fevered pitch in several industries, and that competition agencies around the globe are seriously weighing whether and how to intervene in the standard setting process. One suggestion for such an intervention is the imposition of a licensing cap, referred to as the incremental value rule. We evaluate this proposal and find that even in contexts where this rule is efficient from an ex-post point of view, it induces important distortions in the decisions of firms to innovate and participate in standard setting organizations (SSO). Such a rule reduces the R&D investment that a firm makes in relevant technologies and lowers the probability that it will join the SSO. We characterize a variation of the incremental value rule for defining fair, reasonable, and nondiscriminatory that accounts for both investment and participation incentives.