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An Analysis of Bundle Pricing in Horizontal and Vertical Markets: The Case of the U.S. Cottonseed Market

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  • Shi, Guanming

    (University of Wisconsin)

  • Stiegert, Kyle

    (University of Wisconsin)

  • Chavas, Jean-Paul

    (University of Wisconsin)

Abstract

In this paper, we investigate substitution/complementarity relationships among products sold with different bundled characteristics and under different vertical arrangements. Our conceptual model demonstrates the interactive price impacts emanating from product differentiation, market concentration and market size. The model is applied to the U.S. cottonseed market using transaction level data from 2002 to 2007. This market has been impacted structurally in numerous ways due to the advances and the rapid adoption of seeds with differing bundles of biotechnology traits and vertical penetration emanating from the biotechnology seed industry. Several interesting findings are reported. The econometric investigation finds evidence of sub-additive pricing in the bundling of patented biotech traits. Vertical organization is found to affect pricing and the exercise of market power. While higher market concentration is associated with higher prices, there is also evidence of cross-product complementarity effects that lead to lower prices. Simulation methods are developed to measure the net price effects. These simulations are applicable for use in pre-merger analysis of industries producing differentiated products and exhibiting similar market complexities.

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Bibliographic Info

Paper provided by University of Wisconsin, Agricultural and Applied Economics in its series Staff Paper Series with number 543.

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Date of creation: Dec 2009
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Handle: RePEc:ecl:wisagr:543

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  1. Catherine C. de Fontenay & Joshua S. Gans, 2005. "Vertical Integration in the Presence of Upstream Competition," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 544-572, Autumn.
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Cited by:
  1. Spielman, David J. & Kolady, Deepthi E. & Cavalieri, Anthony & Rao, N. Chandrasekhara, 2014. "The seed and agricultural biotechnology industries in India: An analysis of industry structure, competition, and policy options," Food Policy, Elsevier, vol. 45(C), pages 88-100.
  2. Ma, Xingliang & Shi, Guanming, 2013. "GM vs. Non-GM: A Survival Analysis of U.S. Hybrid Seed Corn," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 42(3), December.
  3. Ma, Xingliang & Shi, Guanming, 2010. "GM vs. Non-GM: A Survival Analysis of Hybrid Seed Corn in the US," Staff Paper Series 553, University of Wisconsin, Agricultural and Applied Economics.

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