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.