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Combining Standard Essential Patents: Bargaining in the Market for Technology

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Document pages: 42 pages

Abstract: The market for technology makes "new combinations " of Standard Essential Patents to form complex innovations, such as smart phones or connected cars. Bargaining fosters efficient combinations of inventions. With bargaining and upward-sloping supply curves, royalties do not distort producer decisions and product markets attain efficiency. Royalties with bargaining are less than with bundled inventions. Bundling inventions increases incentives to invent because the incremental returns to invention with bundled inventions exceed average returns when there are independent inventors. Downstream competition can increase (decrease) incentives to invent as in Arrow (Schumpeter) depending on elasticities of demand and supply.

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