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Licensing Essential Patents: The Non‐Discriminatory Commitment and Hold‐Up
Author(s) -
Li Youping,
Shuai Jie
Publication year - 2019
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12177
Subject(s) - commit , license , revenue , business , social welfare , upstream (networking) , industrial organization , microeconomics , welfare , economics , computer science , market economy , finance , law , telecommunications , database , political science , operating system
Licensors of patents essential to a standard are often required to license on reasonable and non‐discriminatory (RAND) terms. Using a model with owners of essential patents and licensees who invest into standard‐conforming technologies, this paper demonstrates that the non‐discriminatory commitment alleviates the hold‐up problem. Moreover, it improves consumer and social welfare, and promotes upstream innovation as licensing revenue is increased. In an extended model with each licensor independently choosing whether to make the commitment, all licensors voluntarily commit in the unique equilibrium.