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An Analysis of Bundle Pricing: The Case of the Corn Seed Market

Author

Listed:
  • Shi, Guanming

    (U of Wisconsin)

  • Chavas, Jean-Paul

    (U of Wisconsin)

  • Stiegert, Kyle

    (U of Wisconsin)

Abstract

The paper investigates bundle pricing under imperfect competition. In a multiproduct context, the substitution/complementarity relationships among products can affect pricing in complex ways. This is used to motivate multi-product generalizations of the Herfindahl-Hirschmann index, which capture cross-market effects of imperfect competition on bundle pricing. Applied to the US corn seed market, the analysis investigates the pricing of conventional seeds and patented biotech seeds. For bundled biotech seeds, it finds strong evidence of sub-additive bundle pricing, thus rejecting standard component pricing. The econometric results document how increases in traditional and cross-market measures of imperfect competition contribute to higher seed prices.

Suggested Citation

  • Shi, Guanming & Chavas, Jean-Paul & Stiegert, Kyle, 2008. "An Analysis of Bundle Pricing: The Case of the Corn Seed Market," Staff Paper Series 529, University of Wisconsin, Agricultural and Applied Economics.
  • Handle: RePEc:ecl:wisagr:529
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    References listed on IDEAS

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    1. Hanming Fang & Peter Norman, 2006. "To bundle or not to bundle," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 946-963, December.
    2. Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
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    7. Armstrong, Mark & Vickers, John, 2001. "Competitive Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 579-605, Winter.
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    11. R. Venkatesh & Wagner Kamakura, 2003. "Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products," The Journal of Business, University of Chicago Press, vol. 76(2), pages 211-232, April.
    12. Schmalensee, Richard, 1981. "Output and Welfare Implications of Monopolistic Third-Degree Price Discrimination," American Economic Review, American Economic Association, vol. 71(1), pages 242-247, March.
    13. John Shea, 1997. "Instrument Relevance in Multivariate Linear Models: A Simple Measure," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 348-352, May.
    14. Gregory D. Graff & Gordon C. Rausser & Arthur A. Small, 2003. "Agricultural Biotechnology's Complementary Intellectual Assets," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 349-363, May.
    15. Chenghuan Sean Chu & Phillip Leslie & Alan Sorensen, 2006. "Nearly Optimal Pricing for Multiproduct Firms," 2006 Meeting Papers 830, Society for Economic Dynamics.
    16. William James Adams & Janet L. Yellen, 1976. "Commodity Bundling and the Burden of Monopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 90(3), pages 475-498.
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    18. repec:rje:randje:v:37:y:2006:i:4:p:946-963 is not listed on IDEAS
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    Cited by:

    1. Yoo, Do-il, 2012. "Individual and Social Learning in Bio-technology Adoption: The Case of GM Corn in the U.S," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124975, Agricultural and Applied Economics Association.
    2. Shi, Guanming & Stiegert, Kyle W. & Chavas, Jean-Paul, 2009. "An Analysis of Pricing in the U.S. Cotton Seed Market," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 51617, Agricultural and Applied Economics Association.
    3. Nolan, Elizabeth & Santos, Paulo, 2009. "Evidence for increasing concentration in plant breeding industries in the United States and the European Union," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48060, Australian Agricultural and Resource Economics Society.
    4. Fernandez-Cornejo, Jorge & Livingston, Michael J. & Mitchell, Lorraine & Wechsler, Seth, 2014. "Genetically Engineered Crops in the United States," Economic Research Report 164263, United States Department of Agriculture, Economic Research Service.

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