Thursday, February 11, 2010
Posted by Kyle Stiegert (University of Wisconsin, Agriculture and Applied Economics)
Over just 15 years, the development of seeds for corn, soybean, and cotton farmers have changed from a traditional breeding approach to a system that involves breeding with the insertion of numerous combinations of genetically modified seed traits that offer specific on-board services to the plant. These traits are patented by just a few biotech firms, which have accessed the seed sector through both vertical integration contracting.
Seeds are developed to perform within different regional agro-climactic zones. When a biotech firm owns a downstream seed subsidiary, the strategic considerations of the spatially differentiated market become quite complex. For example, perhaps the biotech firm wants to control a regional market in which they own a high-performing seed with their own GM traits. To achieve success, the GM firm could just work hard to fairly market the seed while licensing their GM traits to any other firm that would in turn produce a strong competing seed. Alternatively they could:
control which combinations of GM traits are allowed in competitor seeds,
- limit how their GM traits are stacked with competitor GM traits.
- limit the use of their GM traits in higher performing competitor seeds
- set the technology fee on licensed traits high enough that their subsidiary seed company has a price advantage in the final goods market.
These and other possible strategies open the door to many legal and economic questions about limits of patent rights, abuse of dominance, and market foreclosure. I expect that the DOJ/USDA hearings will begin to unravel many of the complex issues involving GM technologies and their evolving markets. I believe we need to look at the welfare effects on farm producers in this case and not on consumers. Consumer welfare effects would be extremely difficult to measure with any accuracy.