Collaborative Promotion of Technology Standards and the Impact on Innovation, Industry Structure, and Organizational Capabilities: Evidence from Modern Patent Pools

This study explores the impact of modern patent pools–inter‐organizational collaborative arrangements for promoting the adoption of technology standards–on the rate of follow‐on innovations based on pooled technologies, the vertical structure of associated industries, and organizational capabilities of noncollaborating firms. On one hand, the formation of modern pools can boost follow‐on innovation by lowering the search, negotiation, and licensing costs associated with pooled standards. On the other hand, modern pools may decrease the incentives to invest in follow‐on innovations because of cannibalization risks and grant‐back provisions. To the extent that modern pools succeed in establishing a dominant standard, their collaborative nature and their reliance on markets for technology can reduce technological uncertainty and appropriation hazards, hence triggering vertical disintegration in related industries. Moreover, by establishing a dominant standard, modern pools can effectively diminish the relative importance of integrative capabilities inside firms. Employing a combination of empirical strategies, I show that the formation of seven major modern patent pools has, on average, increased the rate of follow‐on innovations based on the pooled standards by about 14%. Moreover, the results suggest that the establishment of modern pools can facilitate a shift toward vertical disintegration in associated industries where upstream technology‐focused organizations would disproportionally contribute to the development of follow‐on complementary technologies. The results also suggest that modern pools reduce the relative importance of integrative capabilities and provide a more advantageous position for specialized startups vis‐à ‐vis diversifying entrants. I discuss the implications for literatures on organizational economics, organizational capabilities, business ecosystems, standards, and nascent industries.