Technology Adoption in Standard Setting Organizations: A Model of Exclusion with Complementary Inputs and Hold-Up

Posted by D. Daniel Sokol

Emanuele Tarantino, University of Bologna - Department of Economics, Tilburg Law and Economics Center (TILEC) writes on Technology Adoption in Standard Setting Organizations: A Model of Exclusion with Complementary Inputs and Hold-Up.

ABSTRACT: I analyze technology adoption in a standardization consortium composed by a majority of vertically-integrated firms and a pure innovator, and its implications for social welfare. Like in most certification bodies, parties negotiate over the royalties after manufacturers' technology adoption, and this generates a hold-up problem. Integrated operators can employ a standard with their inputs and circumvent the hold-up problem, or buy from the specialized firm and enjoy the cost-savings produced by its technology. I show that cross-licensing may lead to the inefficient exclusion of the pure innovator and that a policy of early-licensing commitments would result in efficient adoption choices.