Intellectual Property Clearinghouses: The E¤ects of Reduced Transaction Costs in Licensing

We focus on downstream uses that combine multiple intellectual property rights and examine the e¤ects of introducing an intellectual property clearinghouse that reduces transaction costs associated with licensing. We show that this causes equilibrium royalties to rise in some cases and may harm licensors because clearinghouse by itself does not eliminate the tragedy of the anticommons. Downstream welfare e¤ects may also be positive or negative and we characterise the e¤ects on downstream manufacturers and \u85nal consumers. We also show that total welfare is most likely to increase following a transaction cost reduction when the number of intellectual property rights per downstream use is small, or if rights are relatively substitutable in downstream use, but it is also possible for welfare to decrease. JEL: L24, O34