Competition and Dynamics in Market Structure in Corn and Soybean Seed

Bruce Dahl, William Wilson, Apr 29, 2010

There has been a sharp increase in planting of genetically modified (“GM”) crops in the past decade and further expansion is expected in the United States as well as other countries, as well as in new crops. Firms in this industry have substantial economies of scale due to the high costs of research and development (“R&D). As a result, there have been many mergers and acquisitions, and there are now fewer firms in some of these functional areas. Research to develop genetically-engineered (“GE”) traits is high cost, very risky, takes a substantial amount of time to develop, and is subject to a great deal of uncertainty regarding trait efficiency, government approvals, market acceptability, and prospective impacts of competitor traits. Firms can spend in excess of $100 million to develop a trait and, for varying reasons, not have it commercialized. On the other hand, traits may be developed that have a high degree of trait efficiency and, if other sources of uncertainty are reconciled, these traits may have substantial market penetration.

Firms in the agbiotechnology industry confront important strategic choices. The most important choices concern spending on R&D, how that money is spent, intellectual property (“IP”) protection strategies, and technology distribution strategies. Different approaches have been taken to these strategic decisions, particularly regarding R&D spending and seed and trait distribution.

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