An Analysis of Bundle Pricing in Horizontal and Vertical Markets: The Case of the U.S. Cottonseed Market

Guanming Shi, Kyle Stiegert () and Jean-Paul Chavas ()
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Guanming Shi: University of Wisconsin

Staff Paper Series from University of Wisconsin, Agricultural and Applied Economics

Abstract: In this paper, we investigate substitution/complementarity relationships among products sold with different bundled characteristics and under different vertical arrangements. Our conceptual model demonstrates the interactive price impacts emanating from product differentiation, market concentration and market size. The model is applied to the U.S. cottonseed market using transaction level data from 2002 to 2007. This market has been impacted structurally in numerous ways due to the advances and the rapid adoption of seeds with differing bundles of biotechnology traits and vertical penetration emanating from the biotechnology seed industry. Several interesting findings are reported. 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 higher market concentration is associated with higher prices, there is also evidence of cross-product complementarity effects that lead to lower prices. Simulation methods are developed to measure the net price effects. These simulations are applicable for use in pre-merger analysis of industries producing differentiated products and exhibiting similar market complexities.

JEL-codes: L13 L40 L65 (search for similar items in EconPapers)
Date: 2009-12
New Economics Papers: this item is included in nep-agr, nep-cmp, nep-com, nep-ind and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: An analysis of bundle pricing in horizontal and vertical markets: The case of the U.S. cottonseed market (2011)
Working Paper: An Analysis of Bundle Pricing in Horizontal and Vertical Markets: The Case of the U.S. Cottonseed Market (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:wisagr:543

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