Standard Setting And Market Power

Richard T. Rapp, NERA, and Lauren J. Stiroh, NERA

1/01/2005
(Original Publish Date: 4/18/2002)

Our interest in the economics of standard setting derives from our wish to understand the sources of market power arising in technology markets.1 In the past, it was common to presume that a patent conveyed market power, possibly because of the use of the word"monopoly" in the term "patent monopoly," or possibly because patents are valuable only when they do convey market power. We see this, for example, in the old "market power presumption" that the antitrust case law used to attach to ownership of a patent.2 The invalidity of this presumption is now well understood. Empirical research by Scherer, Pakes,Schankerman, Lanjouw and others has established and confirmed a useful generalization: that the distribution of patent values is skewed; most patents (and patented inventions) are worth very little and only a very few have considerable value.