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Innovation in the Seed Market: The Role of IPRs and Commercialization Rules

  • Marc Baudry EMAIL logo and Adrien Hervouet
Published/Copyright: November 17, 2015
Journal of Agricultural & Food Industrial Organization
From the journal Journal of Agricultural & Food Industrial Organization Volume 14 Issue 1

Abstract

This article deals with the impact of legal rules on incentives in the seeds sector to create new plant varieties. The first category of rules consists in intellectual property rights and is intended to address a problem of sequential innovation and R&D effort. The second category concerns commercial rules that are intended to correct a problem of adverse selection. We propose a dynamic model of market equilibrium with vertical product differentiation that enables us to take into account the economic consequences of imposing either Plant Breeders’ Rights (PBRs) or patents as IPRs and either compulsory registration in a catalog or minimum standards as commercialization rules. The main result is that the combination of catalog registration and PBRs adopted in Europe is hardly supported by the model calibrated on data for wheat in France.

Keywords: intellectual property rights; plant breeders’ rights; catalog; product differentiation; seed market
JEL: D43; K11; L13; Q12; Q16

Appendix

A Variety choice under monopoly

The first order conditions for i∈{i,…,N−1} associated with program (8) may be written as

[15]wi=ci2+wi+12ηi−ηi−1ηi+1−ηi−1+wi−12ηi+1−ηiηi+1−ηi−1+wi+1−ci+12ηi−ηi−1ηi+1−ηi−1+wi−1−ci−12ηi+1−ηiηi+1−ηi−1

Note that for i=1 we have wi−1=c0 so that the last term vanishes. For i=N, the first order condition is

[16]wN=PαηN−ηN−12Amax+cN2+wN−12+wN−1−cN−12

This set of first order conditions is linear with respect to the unknown prices wii∈{1,…,N} so that it is expected that one and only one solution exists. In order to determine this solution, we re-express [15] and [16] in terms of the threshold values of the productivity parameter involved in eq. [ 6]. Let Ai−1i denote the threshold value wi−wi−1Pαηi−ηi−1 of the productivity parameter A above which a farmer prefers variety i to variety i−1. Then, eqs [15] and [16] simplify to

[17]Ai−1i=Amax2+12ci−ci−1Pα(ηi−ηi−1)∀i∈{1,…,N}

that directly yields the optimal expression of each threshold. According to eq. [ 17], monopolistic pricing implies that the value of thresholds remains unchanged when the total number of varieties increases. It follows from this first result and from the demand system [7] that the equilibrium quantity sold for each variety is not affected by an incremental invention taking the form of a new variety with a higher value of parameter η except for the breeder variety prior to the new breeder variety, due to the truncation of demand resulting from the arrival of the latest variety. Furthermore, eq. [ 17] enables us to determine a necessary and sufficient condition for the monopolist to supply each of the varieties i∈{1,...,N} in order to maximize its total profit.

Proposition 1

A monopolist breeder optimally supplies each of varietiesi∈{1,...,N}if and only if the sequence{ci,ηi}of unit costs and quality indexes forms a convex curve in space{c,η}.

Proof 1

According to equation (17) and to the demand system (7), a positive demand is addressed to each varietyi∈{1,...,N}if and only ifci−ci−1ηi−ηi−1increases withi, which is equivalent to the stated convexity property.

If, conversely, the sequence {ci,ηi} of unit costs and quality indexes forms a concave curve in space {c,η}, then the monopolist breeder will only supply the variety i=N characterized by the highest quality.

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Published Online: 2015-11-17
Published in Print: 2016-1-1

©2016 by De Gruyter

Articles in the same Issue

  1. Frontmatter
  3. Non-Tariff Measures When Alternative Regulatory Tools Can Be Chosen
  4. Mergers and Acquisitions (M&As), Market Structure and Inventive Activity in the Agricultural Biotechnology Industry
  5. Measuring Bilateral Market Power in International Markets of Vertically Differentiated Agricultural Commodities
  6. Testing for Oligopsony Power in the US Green Skin Avocado Market
  7. Innovation in the Seed Market: The Role of IPRs and Commercialization Rules
  8. Modeling US Farmer Soybean Seed Choice with Path Dependencies: Inevitable Patented Seed Market Dominance?
  9. Partial Adherence to Voluntary Quality Standards for Experience Goods
  10. Investigating the Price Transmission Mechanisms of Greek Fresh Potatoes, Tomatoes and Cucumbers Markets
  11. Channel Concentration and Retail Prices: Evidence from the Traditional Cheese Market of Cyprus
  12. Price Dependence between Different Beef Cuts and Quality Grades: A Copula Approach at the Retail Level for the U.S. Beef Industry
  13. Factors Associated with Alcoholic Beverages Consumption in Russia: A Discrete Choice Model
https://doi.org/10.1515/jafio-2015-0002
Keywords for this article
intellectual property rights; plant breeders’ rights; catalog; product differentiation; seed market

Articles in the same Issue

  1. Frontmatter
  3. Non-Tariff Measures When Alternative Regulatory Tools Can Be Chosen
  4. Mergers and Acquisitions (M&As), Market Structure and Inventive Activity in the Agricultural Biotechnology Industry
  5. Measuring Bilateral Market Power in International Markets of Vertically Differentiated Agricultural Commodities
  6. Testing for Oligopsony Power in the US Green Skin Avocado Market
  7. Innovation in the Seed Market: The Role of IPRs and Commercialization Rules
  8. Modeling US Farmer Soybean Seed Choice with Path Dependencies: Inevitable Patented Seed Market Dominance?
  9. Partial Adherence to Voluntary Quality Standards for Experience Goods
  10. Investigating the Price Transmission Mechanisms of Greek Fresh Potatoes, Tomatoes and Cucumbers Markets
  11. Channel Concentration and Retail Prices: Evidence from the Traditional Cheese Market of Cyprus
  12. Price Dependence between Different Beef Cuts and Quality Grades: A Copula Approach at the Retail Level for the U.S. Beef Industry
  13. Factors Associated with Alcoholic Beverages Consumption in Russia: A Discrete Choice Model
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