A Better Route to Tech Standards

Josh   Lerner; Jean  Tirole

Article | Science | February 28, 2014

A Better Route to Tech Standards

by Josh Lerner and Jean Tirole

Abstract

Technological standards are ubiquitous, whether they allow consumers to communicate seamlessly across wireless networks or manufacturers to procure goods across complex global supply chains. These standards—shaped by standard-setting organizations (SSOs) and participating engineers, academics, lawyers, and executives—in turn shape how new technologies evolve, specifying rules for how standard-compliant products must work and interact with other components. This standardization process is under tremendous stress. Many disputes roiling courts and administrative bodies around the world—such as those involving Apple, Google, Microsoft, and Samsung—concern commitments made during the standardization process and the ways that firms have sought to "game" the system. We explore why the system is breaking down and propose a way in which standard setting could be redesigned to address these problems.

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Lerner, Josh, and Jean Tirole. "A Better Route to Tech Standards." Science 343, no. 6174 (February 28, 2014): 972–973.

We examine thousands of U.S. private equity (PE) buyouts from 1980 to 2013, a period that saw huge swings in credit market tightness and GDP growth. Our results show striking, systematic differences in the real-side effects of PE buyouts, depending on buyout type and external conditions. Employment at target firms shrinks 13% over two years in buyouts of publicly listed firms but expands 13% in buyouts of privately held firms, both relative to contemporaneous outcomes at control firms. Labor productivity rises 8% at targets over two years post buyout (again, relative to controls), with large gains for both public-to-private and private-to-private buyouts. Target productivity gains are larger yet for deals executed amidst tight credit conditions. A post-buyout widening of credit spreads or slowdown in GDP growth lowers employment growth at targets and sharply curtails productivity gains in public-to-private and divisional buyouts. Average earnings per worker fall by 1.7% at target firms after buyouts, largely erasing a pre-buyout wage premium relative to controls. Wage effects are also heterogeneous. In these and other respects, the economic effects of private equity vary greatly by buyout type and with external conditions.

Hony Capital, a multi-billion dollar private equity firm based in China, is investing in a subsidiary of Jushi Group, a Chinese company that is one of the world’s largest fiberglass producers. The specific project will build a plant in the United States. In this case, students consider the value Hony can provide to Jushi, and must also determine how Hony will eventually exit the transaction, given the complexity around its structure.

The executives of Motilal Oswal Financial Services, Ltd., one of the largest brokerages in India, are considering an IPO on the Indian markets. The company recently received a small private equity investment from two global private equity firms, which it has not yet fully invested. Historically, the Indian markets have favored higher-revenue companies. Should Motilal Oswal go public now, to take advantage of the hot Indian market, or hold off and build its revenue for a higher valuation?

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A Better Route to Tech Standards

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