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Is Monsanto Leaving Money on the Table? Monopoly Pricing and Bt Cotton Value with Heterogeneous Adopters

Published online by Cambridge University Press:  28 April 2015

James F. Oehmke  and
Christopher A. Wolf
James F. Oehmke
Affiliation:
Department of Agricultural Economics, Michigan State University, East Lansing, MI
Christopher A. Wolf
Affiliation:
Department of Agricultural Economics, Michigan State University, East Lansing, MI
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Abstract

We examine the allocation of technology rents between a price-setting, innovating monopolist and heterogeneous technology adopters. A model of monopoly pricing in the presence of heterogeneous adopters is used to examine conditions under which greater producer (farmer) heterogeneity leads to greater producer benefit from innovation in noncompetitive markets. An application to Bt cotton determines the profit-maximizing price of Bt cotton seed and reveals that Monsanto and Delta and Pine Land are indeed leaving money on the table in the form of unexploited profit opportunities. However, we estimate that the presence of heterogeneous adopters explains over 80% of the rents that accrue to the farmers.

Keywords

biotechnologyBt cottonheterogeneous adoptersinnovationmonopoly pricingtechnologyvaluation distributionL1O3Q1
Type
Articles
Information
Journal of Agricultural and Applied Economics , Volume 36 , Issue 3 , December 2004 , pp. 705 - 718
Copyright
Copyright © Southern Agricultural Economics Association 2004

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