Pricing and Vertical Organization of Differentiated Products

This paper investigates differentiated product pricing and vertical organization under imperfect competition. We develop a conceptual model of multiproduct pricing to examine how the exercise of market power varies with substitution/complementarity relationships among products and vertical structures. The analysis is applied to US soybean seed pricing during the period between 2000 and 2007. It considers two vertical structures: Vertical integration and licensing. We find evidence that vertical organization has significant effects on prices. These effects vary depending on the institutional setup and the bundling of genetic material. The empirical evidence shows that, in a multi-market context, complementarity and economies of scope can mitigate the price enhancements associated with market power. Our analysis indicates that market concentration studies that neglect vertical structures fail to capture the linkages between market structure and pricing.

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 Record created 2017-04-01, last modified 2018-01-22

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