Many people are familiar with the “tragedy of the commons”. This is the idea that a common resource will be overused by its users, to their detriment. The classic example is a common field in a village that farmers can use for grazing sheep for free. When deciding how many sheep to graze on the field, each farmer will ignore the negative effect that his sheep have on the sheep of the other farmers that use the same field. Too many sheep on a fixed amount of grass means skinny sheep, which is bad for the farmers. Unless they can somehow coordinate their actions, the joint value to them of the field will be less than its maximum possible value. They could solve this problem by getting together and allocating quotas for using the field, or given ownership of the field to someone and let them charge a price for using it. Either way (in theory) it’s possible to achieve the optimal usage of the field, to the benefit of all.

The tragedy of the anticommons doesn’t get as much airtime, but it’s equally important, especially in high-tech industries. This is where a common resource has too many owners. Imagine the farmers’ field had three separate gates that you have to pass through to access the field. Each gatekeeper sets his own price to use the field independently of the other gatekeepers. When setting prices, each gatekeeper will realise that if he raises his price, fewer sheep will be grazed on the field. This is the normal demand response, and how strong it is will determine whether it’s profitable to raise his price or not. What he fails to take account of, however, is the fact that raising his price reduces the demand that all the gatekeepers receive. Since all will behave in this way, each will have a tendency to set a higher price than would prevail if all the gatekeepers got together and set a single joint price for grazing.

Thus the tragedy of the anticommons has the opposite effect of the tragedy of the commons. With a commons, a lack of ownership means it is over-used. With an anticommons, too many owners means the resource is under-used. Why is the anticommons important in high-tech industries? The answer is intellectual property rights. Many high-tech innovations, as well as standards, are based on multiple intellectual property rights, like patents. If the patents have different owners, an anticommons problem can result. In that case, the ‘field’ is the innovation that makes use of the patents, and the ‘gatekeepers’ are the patent owners. Each patent owner effectively controls access to the innovation, and so there are multiple ‘gates’ that have to be passed through to use it.

This problem can easily come up in the process of standards formation. For example, the patents that define the DVD format standard are owned by a number of different firms. Without some sort of coordination, it’s likely that royalties for DVD technology would be very high. The way around this problem is joint setting of the royalties by the relevant patent owners. In this case, ‘collusion’ among patent owners is actually beneficial. Without coordination, royalties end up being too high which hurts not only the patent holders but the downstream users of the technology. Joint royalty setting will result in lower royalties that are beneficial for all.

As innovation progresses and the number of patents or other intellectual property rights increases, it becomes more likely that further innovations or standards will depend on multiple rights held by different owners. Thus centralisation and coordination of royalties will become more important considerations in standards-setting processes and other forms of innovation.