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Competing Away Market Power? An Economic Assessment of Ex Ante Auctions in Standard Setting

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Participants whose patented technologies are included in standards. Promises to license on reasonable and non-discriminatory (RAND) terms play a key role in mitigating any such market power, but the usefulness of those commitments has recently been questioned. The problem allegedly lies in the absence of a generally agreed test to determine whether a particular license satisfies a RAND commitment. Swanson and Baumol (2005) have suggested that “the concept of a 'reasonable' royalty for purposes of RAND licensing must be defined and implemented by reference to ex ante competition.” In their opinion, a royalty should be deemed “reasonable” when it approximates the outcome of an ex ante auction process where IP owners submit RAND commitments coupled with licensing terms and selection to the standard is based on both technological merit and licensing cost. This test has recently been adopted by the Federal Trade Commission in Rambus. In this paper we investigate whether an ex ante auction approach is likely to deliver efficient outcomes, both from static and dynamic standpoints. Applying lessons from the economics literature on auctions, we find that due to several forms of asymmetry characteristic of the industries where standardization takes place the ex ante auction approach is not likely to deliver the right outcomes from a social welfare viewpoint.

Document Type: Research Article

Publication date: December 1, 2008

More about this publication?
  • This scholarly, peer-reviewed publication of original articles and analysis of current developments in competition law is designed to complement and augment the existing literature with a special focus on European developments. Topics include:
    • Vertical and Conglomerate Mergers
    • Enlargement of the Union - the ramifications for Competition Policy
    • Unilateral and Coordinated Effects in Merger Control
    • Modernisation of European Competition law
    • Cartels and Leniency
    • Article 82- restatement or evolution?

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