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On Pricing and Vertical Organization of Differentiated Products

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  • Shi, Guanming
  • Chavas, Jean

Abstract

This paper investigates the pricing and vertical organization of differentiated products under imperfect competition. In a multiproduct context, we examine how substitution/complementarity relationships among products and vertical structures relate to the exercise of market power. The analysis is applied to pricing of U.S. soybean seeds from 2000-2007. We consider two vertical structures: vertical integration and licensing. We find evidence that vertical organization has significant effects on prices. These effects vary depending on the institutional setup and the bundling of genetic material. Our analysis indicates that market concentration analyses that neglect vertical structures would fail to capture the linkages between market structure and pricing. The empirical evidence shows that complementarity and economies of scope can mitigate the price-enhancement associated with market power in a multi-market context.

Suggested Citation

  • Shi, Guanming & Chavas, Jean, 2010. "On Pricing and Vertical Organization of Differentiated Products," Working Papers 201438, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    • Handle: RePEc:ags:uwfswp:201438
    DOI: 10.22004/ag.econ.201438
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    References listed on IDEAS

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    2. Fernandez-Cornejo, Jorge, 2004. "The Seed Industry In U.S. Agriculture: An Exploration Of Data And Information On Crop Seed Markets, Regulation, Industry Structure, And Research And Development," Agricultural Information Bulletins 33671, United States Department of Agriculture, Economic Research Service.
    3. Baumol, William J, 1982. "Contestable Markets: An Uprising in the Theory of Industry Structure," American Economic Review, American Economic Association, vol. 72(1), pages 1-15, March.
    4. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
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    6. R. Venkatesh & Wagner Kamakura, 2003. "Optimal Bundling and Pricing under a Monopoly: Contrasting Complements and Substitutes from Independently Valued Products," The Journal of Business, University of Chicago Press, vol. 76(2), pages 211-232, April.
    7. Guanming Shi, 2009. "Bundling and Licensing of Genes in Agricultural Biotechnology," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(1), pages 264-274.
    8. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
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    Cited by:

    1. Guanming Shi & Kyle W. Stiegert & Jean P. Chavas, 2011. "An analysis of bundle pricing in horizontal and vertical markets: The case of the U.S. cottonseed market," Agricultural Economics, International Association of Agricultural Economists, vol. 42, pages 77-88, November.
    2. Chavas, Jean-Paul & Shi, Guanming, 2010. "Market Concentration and the Analysis of Vertical Market Structures," Staff Paper Series 551, University of Wisconsin, Agricultural and Applied Economics.

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