On Pricing and Vertical Organization of Differentiated Products

Guanming Shi 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: This paper investigates the pricing and vertical organization of differentiated products under imperfect competition. In a multiproduct context, a Cournot model is used to examine how substitution/complementarity relationships among products and vertical structures can affect the exercise of market power. This motivates a generalization of the Herfindahl-Hirschman index (termed VHHI) capturing how market concentration and vertical structures interact to influence prices of differentiated products. The analysis is applied to pricing of soybean seeds in the US over the period 2000-2007. We consider two vertical structures employed by biotech firms: vertical integration and licensing. The econometric analysis finds evidence that vertical organization has significant effects on seed prices. These effects are found to vary depending on the institutional setup and the bundling of genetic material. The empirical evidence shows that complementarity and economies of scope can reduce the effects of market concentration on prices.

JEL-codes: L13 L40 L65 (search for similar items in EconPapers)
Date: 2009-04
New Economics Papers: this item is included in nep-agr and nep-com
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Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Pricing and Vertical Organization of Differentiated Products (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:wisagr:535

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