Economic Consulting applied to law

This paper compares three possible procedures for the licensing of patents reading on a technology standard. In the …first scenario the licensor fi…xes its royalties once manufacturers have entered the market for standard compliant products. In two alternative scenarios the licensor commits on a royalty level or on a royalty cap before manufacturers enter that market. The licensor’s choice between the three procedures depends on a trade-off between the uncertainty it faces on the expected demand for standard compliant products, and a hold-up effect that deters the entry of manufacturers when royalties are set ex post. The authors show that the …first scenario is always dominated by the royalty cap and can be dominated by the commitment on a royalty level. The authors derive several policy implications for standard setting policies and their antitrust treatment.