An analysis of bundle pricing in horizontal and vertical markets: The case of the U.S. cottonseed market

The U.S. cottonseed market has seen the rapid development and adoption of seeds with differing bundles of genetically modified (GM) traits. It has also seen an increase in vertical integration by biotechnology firms. In this article, we investigate the price impacts associated with structural changes in the U.S. cottonseed market from 2002 to 2007. We develop a structural model to examine the substitution/complementarity relationships among cottonseeds sold with different genetic trait bundles and under different vertical arrangements. We examine the price impacts emanating from product differentiation, market concentration, and market size. The econometric investigation finds evidence of subadditive bundle pricing in patented biotech traits. While higher own‐market concentrations are found to be associated with higher prices, we also uncover evidence of cross‐product complementarity effects that lead to lower prices. Simulations are used to evaluate net price effects, illustrating the usefulness of the approach in the analysis of changing market structures.     

Bundling and Licensing of Genes in Agricultural Biotechnology

We examine the strategic incentive for gene holders to vertically integrate with seed companies and chemical input companies. With homogeneous conventional seeds, we find that a pure bundling strategy (produce the genetically modified seed only) is dominant. When the gene holder and breeder are, respectively, the monopolistic producers of genetically modified and conventional seeds, they may commit to mixed bundling (supply both genetically modified and conventional seed) to deter potential entry to the conventional seed market. A vertical merger may solve the credibility issue of the mixed bundling commitment through third party licensing agreements in the conventional seed market.     

The economic impacts of technology and climate change: New evidence from U.S. corn yields

Over the past century, U.S. farmers have been offered a steady stream of new agricultural technologies, and more recently, experienced climate change. Because these two events have been occurring simultaneously, identifying their separate effects is difficult, and misimputation is easy. This article explicitly examines the economics of technical change and the interaction between weather and technology as revealed in a half century of panel data on U.S. Midwest rainfed state‐average corn yields. Observed yields reflect two components: yield potential and damage to the potential caused by weather and pests. Yield potential is modeled as a stochastic production frontier where nitrogen fertilization, public corn research, and introduction and adoption of biotech corn seeds impact yield potential and excess heat impacts nitrogen productivity. The yield‐damage/damage‐control function permits biotech corn plants to abate adverse effects of weather and pest events. Results include the following: nitrogen use, public corn research, and biotech seed‐corn adoption increase yield potential; soil moisture stress reduces yield potential, and excess heat severely reduces nitrogen productivity. Biotech corn plants abate yield damage caused by soil moisture stress but not excess heat.     

Competition and Tying in Agrichemical and Seed Markets

Genetic engineering technologies that better align crop seeds with field crop product demands and with other crop inputs are rapidly entering commercial markets. Central to the success of these new technologies are corporate strategies on product market segmentation and input interactions. Input suppliers possessed of technical advantages may seek to exploit their positions through marketing restrictions such as product tying and bundling. We interpret the economic literature on vertical restraints and use these existing results to understand the motivation and behavior of some of the participants in the evolving glyphosate and Roundup-ready soybean seed markets.     

The impact of seed industry concentration on innovation: a study of US biotech market leaders

Agricultural research drives increases in agricultural productivity, and the number of private agricultural input firms has been declining. The empirical relationship between the number of firms doing applied biotechnology crop research and the amount of research output they produce is investigated in a research profit function model. Increases in seed industry concentration have reduced biotech research intensity in the United States in the 1990s. Concentration and research are simultaneously determined and are influenced by the appropriability of research results and the state of technological opportunity.     

Market interdependence and volatility transmission among major crops

This article provides a comprehensive analysis of the dynamics of volatility across major agricultural commodities in the United States. Volatility interactions across markets may lower the effectiveness of diversification strategies to mitigate price risks and should be taken into account when analyzing the pricing behavior of different agricultural commodities. We follow a multivariate GARCH approach to evaluate the time evolution of conditional correlations and volatility transmission across corn, wheat, and soybeans price returns on a daily, weekly, and monthly basis. The period of analysis is from 1998 to 2012. The estimation results indicate a lack of lead‐lag relationships between corn, wheat, and soybeans price returns at the mean level. We find, however, important volatility spillovers across commodities, particularly at the weekly and monthly level. Wheat and corn seem to play a major role in terms of volatility transmission. Despite the supposed higher financial market integration of agricultural commodities, we do not observe that agricultural markets have become more interdependent in recent years.     

Price Relationships in Processors' Input Market Areas: Testing Theories for Corn Prices Near Ethanol Plants

This study examines corn pricing in the vicinity of processing plants. We develop and test several price-distance models for cargo, insurance and freight (CIF) plant pricing in the presence of varying degrees of exporter competition, and for discriminatory free-on-board (FOB) pricing at the farm. The price-distance functions describing spatial prices near processing plants all depend on local transport costs. But the pricing system (CIF or FOB) and the extent of local competition define the level and spatial rate of change in prices.Estimations of an empirical price-location function for Iowa during the spring of 2003 suggest that prices near the plants of four conventional businesses conform to the CIF pricing model. But prices near producer-owned firms or farmer cooperatives failed to show any statistically significant effect on nearby prices. One plant had a price-distance function that resembled FOB pricing.     

Infringement of Intellectual Property Rights: Causes and Consequences

A game-theoretic model of heterogeneous producers is developed to examine the economic causes and consequences of intellectual property right (IPR) infringement in the context of a small open developing economy. Analytical results show that complete deterrence of IPR infringement is not always economically optimal. IPR infringement affects economic welfare and has important ramifications for the pricing and adoption of the new technology (biotechnology). The quantitative nature of results depends on the labeling regime. If the TRIPs agreement follows the custom of retaliatory sanctions under GATT, IPR enforcement will remain imperfect and innovators' ability to obtain value for their biotech traits will be limited.     

Strategic pricing in a differentiated product oligopoly model: fluid milk in Boston

In an imperfectly competitive industry, differentiated products compete with each other with price rather than quantity as the strategic variable. Several previous studies have employed a generalized Nash–Bertrand model: Liang (1989) , Cotterill (1994) , Cotterill et al. (2000) , and Kinoshita et al. (2002) ; however, only Liang has explored the theoretical foundations of that model. This article generalizes the Liang two‐good model to three goods. A surprising and important result follows. Price‐conjectural variations do not exist in models with three or more goods. Price‐reaction functions, however, exist in multiple‐good models. We estimate them jointly with a brand‐level demand system to evaluate the total impact of a brand manager's price change on own quantity. In a differentiated product market, this is a useful addition to a partial demand elasticity approach, because a change in one brand's price typically engenders a price reaction by other brands that affects own quantity via substantial cross‐price elasticities among substitutes. Strategic pricing in the Boston fluid milk market was also influenced by the existence of a raw milk price support program, the Northeast Dairy Compact. We find that the advent of the Compact was a focal point event that crystallized a shift away from Nash–Bertrand to more cooperative pricing. If the downstream market is not competitive, one needs to consider strategic price reactions when designing and evaluating agricultural price programs.     

Consumer Attitudes Toward Biotech Foods in China

Abstract

Based on a largescale survey in 11 cities, this study employs probit and logit models to estimate the effects of various explanatory variables on the likelihood of biotech food acceptance in China. Analyses focus on biotech soybean oil, input and outputtrait biotech rice, and livestock products fed with biotech corn.     

Price Discrimination in Russian Wheat Exports: Evidence from Firm‐level Data

Russia emerged as an important wheat exporter in recent years raising the question of how this will affect international wheat markets. In particular developing countries – the main destination of Russian wheat exports – could be harmed by aggressive pricing behaviour. This article analyses the exertion of price discrimination by Russian wheat exporting firms based on Krugman's pricing‐to‐market hypothesis. We apply Knetter's panel model to a firm‐level dataset and find evidence for price‐discriminating behaviour by Russian firms in 25 out of 61 destination countries over the period 2002–2011.     

Seeds of accumulation: Molecular breeding and the seed corn industry in Hawai‘i

This paper examines how the application of advances in molecular biology change the relationships between nature and capital through a case study of Hawaiˋi's seed corn industry. Hawaiˋi's relatively minor role as a winter nursery changed in the late 1990s after the seed corn industry was reshaped by a series of techno‐scientific innovations and organizational restructuring. We draw attention to a molecular breeding technique called marker‐assisted selection (MAS) that accelerates crop improvement cycles by making parent lines selection more efficient and by taking advantage of extra growing seasons in tropical locations such as Hawaiˋi. Additionally, we argue that a wider application of MAS enhances seed firms’ geographical flexibility, allowing them to capitalize on the institutional rents of Hawaiˋi's agrarian politics and overcome challenges that might emerge in the future.     

Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry

Many food traits desired by consumers are costly to provide and difficult to verify. A complicating factor is that delivered quality can only be affected stochastically by producers and imperfectly observed by consumers. Markets for these goods will emerge only if supplying firms can be trusted. We develop a repeated purchases model to explore how quality discoverability, market structure, nature of reputations, market premiums, and discount factors drive firm choice about the stringency of quality assurance systems designed to gain consumer trust. Reputation protection is key incentive for firms to invest in high-quality goods and quality assurance systems.     

The role of retail market power and state regulations in the heterogeneity of farm‐retail price transmission of private label and branded products

Given the leading role of private label brands in the fluid milk market, it is of special interest to focus on possible differences in farm‐retail price transmission between private label and branded milk as well as the causes of heterogeneity. This article examines the heterogeneous effects of private label and branded products on price transmission in the fluid milk market using a panel threshold asymmetric error correction model. Results indicate that upward retail‐price adjustment is faster than the downward price adjustment for both private label and branded milk. The speed of adjustment of private label products is significantly faster than branded products in three different price regimes. We further investigate the reasons of heterogeneity in farm‐retail price transmission of private label milk. We find that both retailer market power and state pricing regulations contribute to the heterogeneity in asymmetric price transmission. Higher retailer market power causes retail prices of private label milk to rise faster and to fall slower. The existence of a state pricing regulation slows down the adjustment speed of retail prices of private labels back to the long‐run equilibrium, regardless of whether the retail price is low or high.     

Regulatory Events and Biotech Firm Share Prices

Using the "event study" method, we measure the impact on agricultural biotechnology firm equity values of new regulations and other limitations placed on the marketing of biotech crops. Unanticipated declines to biotech firm stock prices indicate that newly imposed regulatory restrictions appear most likely to diminish profit expectations for these firms. The stock price reaction to decisions by crop handlers, processors, or retailers to segregate or limit the use of biotech crops and to reports questioning their safety are less pronounced. Incentives to engage in new biotech crop research and development may be diminished by these developments.     

Public Research Policy for Today's Agricultural Biotech Research Industry

While the public sector has historically played a very significant role in the direct provision of agricultural research, the appropriate role of government in the future is no longer apparent in a world with intellectual property rights (IPRs) and a concentrated privatized biotech research industry. This study develops a search/imperfect competition framework to examine the public role. The analysis shows that private firms have inadequate incentives to invest in research for varietal improvement relative to the social optimum even with completely enforceable IPRs. A government subsidy on research output can efficiently increase the amount of applied research to the socially optimal point. Government subsidy of the research cost can have the same effect on research and development expenditure. Expanding direct applied public research increases social welfare but cannot achieve a social optimum, as it reduces the already limited incentives for private firms to invest. Finally, in situations where basic research is underprovided, government should address these market failures as part of an optimal research policy. Overall, the analysis suggests that there is a role for public support of applied research, but this role is no longer direct public involvement in applied research where IPRs are well established.     

Do subsidies cause a less competitive milk market in China?

After 2008, China dairy industry has experienced a consolidation supported by the government mainly for the reason of food safety. Subsidies are one of the tools to shape a concentrated market with goals of reducing regulation cost and accomplishing quality control. This gives a serious concern that subsidies would generate a less competitive dairy industry. We construct a parametric model and use the firm‐level panel data, specifically the top eight dairy firms, to test if government subsidies strengthen the market power in the dairy industry. Our empirical results indicate government subsidies have a negative impact on the Lerner index for the top privately owned firms, but no significant effect on state‐controlled ones after controlling for advertising, time trend, and proprietorship. It is possible that the subsidies give more room for private firms to increase the scale or suppress the price, which eventually reduces the market power and benefits dairy customers in the downstream.     

黑龙江省玉米产业发展现状、问题与对策研究

玉米是黑龙江省重要的农作物之一,其产业发展对维护国家粮食安全及带动农村居民致富具有作用。文章在充分分析黑龙江省玉米产业发展现状的基础上,阐述玉米生产区连片、自然条件适合玉米生产等相关优势,分析制约玉米产业的主要因素包括玉米专用品种较少;耕地数量减少和耕地质量逐步退化;产业化水平不高,社会化服务体系不健全;深加工比重低,产品附加值不高;外企种业公司带来的市场冲击等。并从加强玉米新品种的筛选和培育;培育农业加工龙头企业,提高产业化水平;提高组织化程度,合理促进利润分配;优化产业结构,提高玉米市场竞争力;保持耕地总量平衡,加大基本农田保护力度;建立玉米产业信息网络平台,及时发布市场信息等6个方面提出促进黑龙江省玉米产业发展的策略。     

Expected Utility,Risk, and Marketing Behavior: Theory and Evidence from the Fed Cattle Market

The effect of carcass quality uncertainty on the structure of the slaughter cattle market is investigated. A theoretical extension of the “Theory of Factor Price Disparity” is provided. It is demonstrated that the coexistence of a risk premium wedge between marketing channel (live weight, dressed weight, and grid) pricing mechanisms, in conjunction with varying degrees of producer risk aversion or producer perception of carcass quality uncertainty, contributes to the coexistence of multiple marketing channels. It is also demonstrated that risk and risk preference provide the linkage between carcass quality uncertainty and producer marketing decisions. We demonstrate how this linkage can affect the structure of the fed cattle market and the variability in slaughter volume across marketing channels. We also confirm the linkage between value‐based production techniques that increase seller information on carcass quality and seller increased usage of grid pricing regardless of actual carcass quality. Empirical evidence is provided in support of the supposition that carcass quality uncertainty plays a role in grid market share variability.     

What drives stock market integration? An analysis using agribusiness stocks

This article explores the drivers of regional stock market integration with a focus on the agribusiness sector across relevant regional trade blocs around the world. We implement panel cointegration models to analyze the stock indices of agribusiness firms in the Southern Common Market (MERCOSUR), European Union (EU), Asia‐Pacific Economic Cooperation (APEC), and North American Free Trade Agreement (NAFTA). Based on the literature on market integration and stock return pricing, we identify nine possible determinants of stock market integration, which we separate into three categories: individual market performance, macroeconomic conditions, and agricultural trade. In our analysis, we account for agriculture‐specific factors to control for possible structural shifts in financial markets regimes by including the two main commodity price bubbles during last 20 years. Our results show that most of the variables included in our categories have been important factors in promoting regional stock market integration. Moreover, integration among regional stock markets was strengthened by the implementation of trade agreements. This effect is stronger in trade blocs with fewer members, such as NAFTA and MERCOSUR, compared with larger and more heterogeneous blocs, such as the EU and APEC.