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Pricing and Vertical Organization of Differentiated Products

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  • Shi, Guanming
  • Chavas, Jean-Paul

Abstract

This paper investigates differentiated product pricing and vertical organization under imperfect competition. We develop a conceptual model of multiproduct pricing to examine how the exercise of market power varies with substitution/complementarity relationships among products and vertical structures. The analysis is applied to US soybean seed pricing during the period between 2000 and 2007. It considers 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. The empirical evidence shows that, in a multi-market context, complementarity and economies of scope can mitigate the price enhancements associated with market power. Our analysis indicates that market concentration studies that neglect vertical structures fail to capture the linkages between market structure and pricing.

Suggested Citation

  • Shi, Guanming & Chavas, Jean-Paul, 2010. "Pricing and Vertical Organization of Differentiated Products," Staff Papers 92228, University of Wisconsin-Madison, Department of Agricultural and Applied Economics.
    • Handle: RePEc:ags:wisagr:92228
    DOI: 10.22004/ag.econ.92228
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    Cited by:

    1. Shi, Guanming & Stiegert, Kyle W. & Chavas, Jean-Paul, 2009. "An Analysis of Pricing in the U.S. Cotton Seed Market," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 51617, Agricultural and Applied Economics Association.
    2. 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.
    3. Shi, Guanming & Stiegert, Kyle & Chavas, Jean Paul, 2010. "An Analysis of Pricing in Horizontal and Vertical Markets: The Case of the Cottonseed Market," Working Papers 201439, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    4. Shi, Guanming & Stiegert, Kyle & Chavas, Jean-Paul, 2009. "An Analysis of Bundle Pricing in Horizontal and Vertical Markets: The Case of the U.S. Cottonseed Market," Staff Paper Series 543, University of Wisconsin, Agricultural and Applied Economics.
    5. 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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    More about this item

    Keywords

    Demand and Price Analysis; Research Methods/ Statistical Methods;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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