Endogenous Patent Pool Formation

We investigate the endogenous pool formation of three patents and the associated welfare effect in a framework à la Lerner and Tirole (2004), by using the notion of equilibrium binding agreements (Ray and Vohra 1997). We show that, when three-patent combination is synergistic, the complete pool is stable if the total value of all patents is sufficiently high or the equilibrium profits of fragmented patents are sufficiently symmetric. Moreover, the stable complete pool is always welfare-maximizing, while fragmented patents are possible to be both stable and welfare-maximizing