Florian Schuett

Patent quality and incentives at the patent office

Patent examination is a problem of moral hazard followed by adverse selection: examiners must have incentives to exert effort, but also to truthfully reveal the evidence they find. I develop a theoretical model to study the design of incentives for examiners. The model can explain the puzzling compensation scheme in use at the U.S. patent office, where examiners are essentially rewarded for granting patents, as well as the variation in compensation schemes and patent quality across patent offices. It also has implications for the retention of examiners and for administrative patent review.

Media Competition and Electoral Politics

We build a framework linking competition in the media market to political participation, media slant, and selection of politicians. Media outlets report on the ability of candidates running for offi ce and compete for audience through their choice of slant. Citizens derive utility from following a rule that maximises their groups welfare. The rule specifies whether to vote and consume news. Our results can reconcile seemingly contradictory empirical evidence showing that entry in the media market can either increase or decrease turnout. We also provide insights about the impact of competition on the most competent candidates chance of election.

Music piracy: A case of “The Rich Get Richer and the Poor Get Poorer”

There is evidence that music piracy has differential effects on artists depending on their popularity. We present a model of music piracy with endogenous copying costs: consumers’ costs of illegal downloads increase with the scarcity of a recording and are therefore negatively related to the number of originals sold. Allowing for a second source of revenues apart from record sales, we show that piracy can hurt some artists while benefiting others. Under plausible assumptions, piracy is beneficial to the most popular artists. However, this does not carry over to less popular artists, who are often harmed by piracy. We conclude that piracy tends to reduce musical variety.

TRANSPARENCY IN MARKETS FOR EXPERIENCE GOODS: EXPERIMENTAL EVIDENCE

We propose an experimental design to investigate the role of information disclosure in the market for an experience good. The market is served by a duopoly of firms that choose both the quality and the price of their product. Consumers differ in their taste for quality and choose from which firm to buy. We compare four different treatments in which we vary the degree to which consumers are informed about quality. Contrary to theoretical predictions, firms do not differentiate quality under full information. Rather, both tend to offer products of similar, high quality, entailing more intense price competition than predicted by theory. Under no information, we observe a “lemons” outcome where quality is low. At the same time, firms manage to maintain prices substantially above marginal cost. In two intermediate treatments, quality is significantly higher than the no-information level, and there is evidence that prices become better predictors of quality. Taken together these findings suggest that information disclosure is a more effective tool to raise welfare and consumer surplus than theory would lead one to expect.

Transparency Regulation as a Remedy for Network Neutrality Concerns: Experimental Results

We present a research project in experimental law and economics about the effects of new transparency provisions in European telecommunications law on Internet Service Providers (ISPs) and end-users in broadband markets, with implications for the debate on network neutrality. Our experiment evaluates the effects of increased transparency about the actual quality of broadband Internet. We compare four treatments in which end-users have different amounts of information about broadband quality. We conclude that (1) more information about the quality of a broadband connection leads to higher total surplus and higher end-user surplus; (2) quality provided by ISPs increases with the level of transparency; (3) quality and efficiency are marginally higher when full information about quality is only available to some end-users, than when all end-users have imperfect information about quality. To these findings we attach a number of policy-related conclusions.

Inventors and Impostors: An Analysis of Patent Examination with Self-Selection of Firms into R&D: Inventors And Impostors: Self-Selection of Firms Into R&D

I present a model in which firms differing in R&D productivity choose between ambitious research projects, which are socially desirable, and unambitious ones, which are socially undesirable. The patent office must decide how rigorously to examine applications, which affects the probability of weeding out bad applications but also how firms self-select into R&D. I show that when a subset of firms is financially constrained, the patent office should examine their applications more rigorously. This generates a number of predictions that I test by exploiting the 1982 reform that introduced firm-size dependent fees in the United States.

Screening for Patent Quality : Examination, Fees, and the Courts

We develop an integrated framework to study how governments can improve the quality of patent screening. We focus on four key policy instruments: patent office examination, pre- and post-grant fees, and challenges in the courts. We show that there are important complementarities among these instruments, and identify conditions under which they can be used to achieve either partial or complete screening. We simulate the model to study the welfare effects of different policy reforms. We show that intensifying patent office examination, frontloading patent fees and capping litigation costs all generate welfare gains, while replacing examination with a pure registration system reduces welfare.

Repeated interaction in standard setting: LAROUCHE and SCHUETT

As part of the standard-setting process, certain patents become essential. This may allow the owners of these standard-essential patents to hold up implementers of the standard, who can no longer turn to substitute technologies. However, many real-world standards evolve over time, with several generations of standards succeeding each other. Thus, standard setting is a repeated game in which participants can condition future behavior on whether or not hold-up has occurred in the past. In the presence of complementarity between the different patents included in the standard, technology contributors have an incentive to discipline each other and keep royalties low, which can be achieved by threatening to exclude contributors who have engaged in hold-up from future rounds of the process. We show that repeated standard setting can sustain FRAND royalties provided the probability that another round of standard setting will occur is sufficiently high. We also examine how the decision-making rules of standard-setting organizations affect the sustainability of FRAND royalties.