Standard Setting Organizations and Standard Essential Patents: Voting and Markets

The key finding is that Standard Setting Organizations (SSOs) choose effi cient technology standards because voting power and market power have counterbalancing effects. Agents on the long side of the market have less added value in the marketplace but more voting power in cooperative organizations and conversely for the short side of the market. In a two-stage model, industry members choose technology standards by voting and then compete in the marketplace. Even when there are disagreements among vertical industry groups, SSO members vote for the effi cient standard unanimously. When there are Standard Essential Patents (SEPs), technology adopters also vote for the ∗Elinor Hobbs Distinguished Professor of International Business, and Professor of Strategy, Strategy Department, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL, 60208. E-mail: [email protected]. This paper is a substantially revised version of an earlier working paper with a similar title. I gratefully acknowledge research support from Qualcomm, the Ewing Marion Kauffman Foundation, and the Kellogg School of Management. I thank Justus Baron, Dennis Carlton, Pere Arque-Castells, Jorge Contreras, Manfred Holler, Ehud Kalai, Nicola Persico, Michael Riordan, and Yossi Spiegel for helpful comments. I thank Jean Tirole for very helpful comments on the paper as a conference discussant. I am also grateful for helpful comments from participants at the Harvard Business School Technology and Operations Management seminar, the Kellogg Managerial Economics and Decision Sciences seminar, and the Ninth Annual Antitrust Economics and Competition Policy Conference at the Searle Center on Law, Regulation, and Economic Growth, Northwestern University.