Endogenous R&D Investment and Market Structure: A Case Study of the Agricultural Biotechnology Industry
AbstractOver the past three decades, the agricultural biotechnology sector has been characterized by rapid innovation, market consolidation, and a more exhaustive definition of property rights. The industry attributes consistently identified by the literature and important to this analysis include: (i) endogenous sunk costs in the form of expenditures on R&D; (ii) seed and agricultural chemical technologies that potentially act as complements within firms and substitutes across firms; and (iii) property rights governing plant and seed varieties that have become more clearly defined since the 1970s. This paper adds to the stylized facts of the agricultural biotechnology industry to include the ability of firms to license technology, a phenomenon observed only recently in the market as licensing was previously precluded by high transactions costs and “anti-stacking” provisions. We extend Sutton's theoretical framework of endogenous sunk costs and market structure to incorporate the ability of firms to license technology under well-defined property rights, an observed characteristic not captured in previous analyses of the sector. Our model implies that technology licensing leads to lower levels of industry concentration then what would be found under Sutton's model, but that industry concentration remains bounded away from perfect competition as market size becomes large.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 107832.
Date of creation: 2011
Date of revision:
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More information through EDIRC
licensing; market structure; R&D; agricultural biotechnology; Research and Development/Tech Change/Emerging Technologies; L22; L24; Q16;
Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures
- Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
This paper has been announced in the following NEP Reports:
- NEP-AGR-2011-07-02 (Agricultural Economics)
- NEP-ALL-2011-07-02 (All new papers)
- NEP-COM-2011-07-02 (Industrial Competition)
- NEP-INO-2011-07-02 (Innovation)
- NEP-IPR-2011-07-02 (Intellectual Property Rights)
- NEP-SBM-2011-07-02 (Small Business Management)
- NEP-TID-2011-07-02 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guanming Shi, 2009. "Bundling and Licensing of Genes in Agricultural Biotechnology," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 264-274.
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CUDARE Working Paper Series
901R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
- Goodhue, Rachael E. & Rausser, Gordon C. & Scotchmer, Suzanne & Simon, Leo K., 2002. "Biotechnology, intellectual property and value differentiation in agriculture," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9w85z5r6, Department of Agricultural & Resource Economics, UC Berkeley.
- Goodhue, Rachael E & Rausser, Gordon C. & Scotchmer, Suzanne & Simon, Leo K., 2002. "Biotechnology, Intellectual Property and Value Differentiation in Agriculture," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt83h3x830, Department of Agricultural & Resource Economics, UC Berkeley.
- Aoki, Reiko & Prusa, Thomas J., 1997. "Sequential versus simultaneous choice with endogenous quality," International Journal of Industrial Organization, Elsevier, vol. 15(1), pages 103-121, February.
- Arora, Ashish & Fosfuri, Andrea, 1999.
"Licensing the Market for Technology,"
CEPR Discussion Papers
2284, C.E.P.R. Discussion Papers.
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