IP² Working Paper No. 15010
by Alexander Galetovic, Stephen Haber, and Ross Levine
Original date: March 30, 2015
Published at Journal of Competition Law and Economics
Keywords: Firms, market performance, market structure, innovation, government policy
For an earlier version of this working paper please click here.
A large literature asserts that standard essential patents (SEPs) allow their owners to “hold up” innovation by charging fees that exceed their incremental contribution to a final product. We evaluate two central, interrelated predictions of this SEP hold-up hypothesis: (1) SEP-reliant industries should experience more stagnant quality-adjusted prices than similar non-SEP-reliant industries; and (2) court decisions that reduce the excessive power of SEP holders should accelerate innovation in SEP-reliant industries. We find no empirical support for either prediction. Indeed, SEP-reliant industries have the fastest quality-adjusted price declines in the U.S. economy.