Complementary patents and market structure

Klaus M. Schmidt

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

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Year of publication:	2009 ; This version: August 19, 2009
Authors:	Schmidt, Klaus M.
Publisher:	Mannheim [u. a.] : Sonderforschungsbereich/Transregio 15
Subject:	IP rights \| complementary patents \| standards \| licensing \| patent pool \| vertical integration \| Patent \| Lizenz \| Licence \| Vertikale Integration \| Vertical integration \| Theorie \| Theory \| Patentrecht \| Patent law \| Immaterialgüterrechte \| Intellectual property rights \| Marktstruktur \| Market structure \| Innovation \| Innovationsmanagement \| Innovation management \| Hochtechnologie \| High technology \| Standardisierung \| Standardization