An Analysis of Bundle Pricing in Horizontal and Vertical Markets: The Case of the U.S. Cottonseed Market
AbstractIn 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 InfoPaper provided by University of Wisconsin, Agricultural and Applied Economics in its series Staff Paper Series with number 543.
Date of creation: Dec 2009
Date of revision:
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
This paper has been announced in the following NEP Reports:
- NEP-AGR-2010-06-04 (Agricultural Economics)
- NEP-ALL-2010-06-04 (All new papers)
- NEP-CMP-2010-06-04 (Computational Economics)
- NEP-COM-2010-06-04 (Industrial Competition)
- NEP-IND-2010-06-04 (Industrial Organization)
- NEP-MKT-2010-06-04 (Marketing)
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.:
- Catherine C. de Fontenay & Joshua S. Gans, 2004.
"Vertical Integration in the Presence of Upstream Competition,"
Department of Economics - Working Papers Series
904, The University of Melbourne.
- 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.
- Joshua Gans & Catherine de Fontenay, 2004. "Vertical Integration in the Presence of Upstream Competition," Econometric Society 2004 North American Winter Meetings 7, Econometric Society.
- Spielman, David J. & Kolady, Deepthi & Cavalieri, Anthony & Chandrasekhara Rao, N., 2011. "The seed and agricultural biotechnology industries in India: An analysis of industry structure, competition, and policy options," IFPRI discussion papers 1103, International Food Policy Research Institute (IFPRI).
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