Agricultural & Applied Economics

An Analysis of Bundle Pricing: The Case of the Corn Seed Market

Guanming Shi [gshi@wisc.edu]
Jean-Paul Chavas [jchavas@wisc.edu]
Kyle Stiegert [kwstiegert@wisc.edu]

Staff Paper No. 529, December 2008, 42p.

Abstract

This paper investigates bundle pricing under imperfect competition. In a multiproduct context, we first examine how substitution/complementarity relationships among products can affect pricing. This is used to motivate multi-product generalizations of the Herfindahl-Hirschmann index (GHHI) capturing cross-market effects of imperfect competition on bundle pricing. The GHHI model is applied to pricing of conventional and patented biotech seeds in the US from 2000-2007. One major finding is that standard component pricing in biotech traits is soundly rejected in favor of sub-additive bundle pricing. This result is consistent with the presence of scope economies in the production of genetic traits. The econometric estimates show how changes in market structures (as measured by both own- and cross-Herfindal indexes) affect U.S. corn seed prices.

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