Switching costs in the US seed industry: Technology adoption and welfare impacts |
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| Affiliation: | 1. Citibank, Tampa, FL, USA;2. Iowa State University, Ames, IA, USA;3. Kansas State University, Manhattan, KS, USA;1. Institut Polytechnique de Paris, Telecom Paris, Department of Economics and Social Sciences, 19 Place Marguerite Perey, 91120 Palaiseau, France & University of Cape Town, School of Economics, Rondebosch, 7701, Cape Town, South Africa;2. Deloitte Finance, 6 Place de La Pyramide Tour Majunga Deloitte, 92800, Puteaux, France;1. Université Paris-Saclay, INRAE, AgroParisTech, Paris-Saclay Applied Economics, Palaiseau, 91120, France;2. CREST, École polytechnique, France;3. Normandie Université, IDEES-UMR CNRS 6266, UFR SEGGAT, Esplanade de la Paix, Caen 14000, France;1. Uber Technologies, Inc., USA;2. Department of Economics, Eller College of Management, University of Arizona, Tucson, AZ, USA |
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| Abstract: | We evaluate the role of brand and technology switching costs in the US soybean seed industry using a unique dataset of actual seed purchases by about 28,000 farmers from 1996 to 2016. Using a random coefficients logit model of demand, we estimate brand and technology switching costs, characterize the distributions of buyers’ willingness to pay for seed brands and the glyphosate tolerance (GT) trait, and assess the implications of brand and technology switching costs for farmers’ welfare, technology adoption, firm profits, and firm market shares. We find that farmers are willing to pay large premiums for brand labels, and even larger premiums for the GT trait, although there is considerable heterogeneity in these values. Switching costs play an important role in the soybean seed industry. Eliminating these costs would significantly increase buyers’ welfare, reduce seed prices and firm profits, decrease adoption of the GT trait, and impact industry consolidation by expanding smaller firms’ market shares. |
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