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Ex-ante Agreements and FRAND Commitments in a Repeated Game of Standard-Setting Organizations

Authors
  • Llanes, Gastón1
  • 1 Pontificia Universidad Católica de Chile, Escuela de Administración, Vicuña Mackenna 4860, Macul, Santiago, Chile , Macul (Chile)
Type
Published Article
Journal
Review of Industrial Organization
Publisher
Springer US
Publication Date
Jul 19, 2018
Volume
54
Issue
1
Pages
159–174
Identifiers
DOI: 10.1007/s11151-018-9647-7
Source
Springer Nature
Keywords
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Abstract

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.

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