Standards, consortia, and innovation

- We theoretically analyze how ad hoc consortia supplement formal SSOs.
- The joint development of standards may entail either free riding or rent seeking.
- Profits derived from essential patents determine which coordination issue prevails.
- Consortia can alleviate both coordination issues through enhanced cooperation.
- We find empirical evidence supporting this prediction.

The development of formal ICT standards is a challenging form of collaborative innovation, combining consensus decision making and R&D rivalry. To supplement this formal standard setting process, it has thus become frequent that part of the involved firms creates ad hoc consortia to better align positions on a common technology roadmap. This paper aims to assess whether such consortia can effectively mitigate R&D coordination failure through enhanced cooperation. We first develop a theoretical model showing that depending on the nature of firms' incentives to contribute proprietary technology, different types of R&D coordination failure - namely a Public Good or Rent Seeking problem - may occur in equilibrium. Using a large panel of standards, we then confirm empirically the prediction that consortia have different effects on innovation under a Public Good or Rent Seeking regime. Overall, we observe an increase in innovation after a firm joined a consortium. However, this effect is significantly weakened or even reversed for standards characterized by a strong Rent Seeking regime.