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An Analysis of Pricing in Horizontal and Vertical Markets: The Case of the Cottonseed Market

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  • Shi, Guanming
  • Stiegert, Kyle
  • Chavas, Jean Paul

Abstract

This paper investigates the role of horizontal and vertical market structures in pricing differentiated products. The conceptual model demonstrates how substitution and complementarity relationships between products and across vertical channels relate to market concentration and market size. The model is applied to the U.S. cottonseed market using data from 2002 to 2007. 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 the analysis shows that higher market concentration is associated with higher prices, it also uncovers evidence of complementarity effects that reduce price enhancements. Our simulation approach is applicable for pre-merger analysis of industries producing differentiated products and exhibiting similar market complexities.

Suggested Citation

  • Shi, Guanming & Stiegert, Kyle & Chavas, Jean Paul, 2010. "An Analysis of Pricing in Horizontal and Vertical Markets: The Case of the Cottonseed Market," Working Papers 201439, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    • Handle: RePEc:ags:uwfswp:201439
    DOI: 10.22004/ag.econ.201439
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    Cited by:

    1. 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.
    2. 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.

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