Three Essays on the Pricing of Complements, Cooperation and Integration

This thesis contains three papers focusing on firms' behaviors in complex interactions. The first paper focuses on the pricing of complements, for example, patents in a patent pool. In such a situation, firms might face multi-marginalization problems of such magnitude that the equilibrium prices lead to an aggregate price higher than the monopoly price. In such a situation, by coordinating their prices, firms would lower the aggregate price for technology. However, firms might also coordinate to increase their prices in some situations. Whether firms’ price coordination in the presence of complements increases or lowers prices depends on demand characteristics and the pattern of technology complementarity, which are difficult to assess by competition agencies. In a seminal paper, Lerner and Tirole (2004) propose independent licensing as an information-free device to ensure that only efficient patent pools form. The first paper of this thesis shows that independent licensing is insufficient to restore patent pool efficiency. A cap on the level of independent licenses should complement such independent licensing. The second paper assesses another situation in which firms could cooperate in ways that could benefit or harm consumers. In this paper, firms could repeatedly coordinate on a dimension close to providing a public good, such as energy-efficient technology, which benefits society. However, they could also collude on prices, which harms consumers. The second paper assesses whether a second, pro-competitive, dimension of coordination increases the likelihood of price collision. The third paper analyzes the consequences of input standardization on vertical integration and entry of firms. Standards facilitate compatibility between input providers and are a substitute for adapting the inputs to the needs of the final good producer. Without a standard, inputs are less compatible, and adaptation becomes more important for generating profits. When profits are high, this creates a motive for vertical integration to facilitate adaptation. Adaptation becomes less important with standards, and the motive for vertical integration weakens. Standardization improves the overall fit of inputs to the need of specialized producers and total welfare when contracting happens. Still, because standardization increases the cost to suppliers, it leads to contractual failure when downstream profits are low.