Agricultural Biotechnology and Industry Structure

Abstract

In the last ten years the seed and pesticide industries have undergone a substantial number of structural changes. These changes are due to a number of factors, some of which are common to all industries and some of which are specifically tied to the biotechnology that is increasingly important in the seed and chemical industries. The focus of this paper is on these latter linkages. The horizontal mergers and acquisitions can be linked to R&D costs, economies of scale and scope created by intellectual property rights, and to regulatory costs, while the increased vertical linkages are connected to product complementarity and to the difficulty in enforcing certain types of intellectual property. In other cases, the rise of better defined intellectual property rights has been a factor in the joint ventures and strategic alliances that have occurred. The pricing behavior of the large firms in the seed and chemical industries appears to be strategic in nature, with pricing being influenced by competition from other products and the value created by their products. There is substantial evidence of price discrimination, whether it is in the form of TUAs, differential pricing, or tied sales. The major impact of this strategic pricing is not on the total economic surplus created as a result of R&D, but rather on the distribution of this surplus.