Vertical Structure and Patent Pools

It is well known that patent pools can enhance efficiency by eliminating the complements problem. This paper investigates how the presence of vertically integrated firms affects the economic impact of a patent pool. Without a patent pool, the presence of integrated firms may either increase or decrease the final product price as there are two countervailing effects – reduced double marginalization and raising rivals’ costs. However, when there is a patent pool, vertical integration always lowers the final product price. In conclusion, the economic efficiency arguments for patent pools are enhanced when some firms are vertically integrated. Copyright Kluwer Academic Publishers 2004