Complementary components and returns from coordination within ecosystems via standard setting

Research Summary When and how does a firm generate positive returns for itself as it coordinates technological development in ecosystems via standard setting? We depart from the convention of examining a firm's disclosed standard essential patents (SEPs), to instead focus on its nondisclosed complementary components. Using data from the information and communication technology industry from 1988 to 2010, we demonstrate that a firm that discloses SEPs generates higher returns when it has more nondisclosed complementary components, especially when they are firm-specific. We further demonstrate the mechanism by showing at a component level that disclosure raises the value of nondisclosed complementary components. Findings suggest that adopting a systemic perspective over the firm's entire portfolio to include its complementary components provides a more comprehensive understanding of returns from coordination within ecosystems. Managerial Summary Compatibility standards provide the blue print behind the core technological platform in many ecosystems. During the standard setting process, firms disclose their ownership of intellectual property essential for the standard to function (SEPs). We study when such disclosures benefit the firm by examining the change in firms' equity market valuations. We find that firms generate positive returns when they own nondisclosed components that are complementary to their disclosed SEPs. We also find that the nondisclosed complementary components increase in value after the disclosure of SEPs. Our findings point to how managers can leverage standard setting to create and capture value in their technology portfolio beyond the licensing of SEPs.