Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, March 18, 2010

Complementary Patents and Market Structure

Posted by D. Daniel Sokol

Klaus Schmidt (University of Munich) addresses Complementary Patents and Market Structure.

ABSTRACT: Many high technology goods are based on standards that require several essential patents owned by different IP holders. This gives rise to a complements and a double mark-up problem. We compare the welfare effects of two different business strategies dealing with these problems. 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 solves the complements problem but not the double mark-up problem. Vertical integration discourages entry and reduces innovation incentives, while horizontal integration always benefits from entry and innovation.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/03/complementary-patents-and-market-structure.html

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