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An analysis of bundle pricing: the case of biotech seeds
Author(s) -
Shi Guanming,
Chavas JeanPaul,
Stiegert Kyle,
Meng Xiangyi
Publication year - 2012
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.2012.00627.x
Subject(s) - superadditivity , subadditivity , complementarity (molecular biology) , pricing strategies , bundle , economics , business , microeconomics , biology , mathematical economics , mathematics , genetics , materials science , discrete mathematics , composite material
Biotechnology has provided opportunities for strategic management and pricing of patented products. This article analyzes the economics and strategy of bundling and bundle pricing of biotech traits in seeds. When the bundling of genes/traits is decided by biotech firms, firms may choose among subadditive pricing, component pricing, or superadditive pricing strategies. We argue that complementarity among component genes contributes to subadditive pricing, while substitution among components contributes to superadditive pricing. The nature of bundle pricing is explored empirically using U.S. seed corn data from 2000 to 2007. We document that subadditive bundle pricing of traits is commonly found in the seed corn market. However, we also present evidence of superadditive pricing and component pricing. The presence of different pricing and bundling strategies suggests a rapidly advancing and complex market. The preponderance of subadditive pricing suggests that trait bundling offers benefits to farmers exhibiting strong demand for multiple complementary genetic traits.