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

41 Pages Posted: 24 Sep 2008 Last revised: 6 Nov 2012

See all articles by Guanming Shi

Guanming Shi

University of Wisconsin - Madison

Jean-Paul Chavas

University of Wisconsin

Kyle W. Stiegert

University of Wisconsin

Date Written: November 20, 2008

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.

Keywords: Bundling, component pricing, imperfect competition, seed, biotechnology

JEL Classification: L13, L4, L65

Suggested Citation

Shi, Guanming and Chavas, Jean-Paul and Stiegert, Kyle W., An Analysis of Bundle Pricing: The Case of the Corn Seed Market (November 20, 2008). Available at SSRN: https://ssrn.com/abstract=1272132 or http://dx.doi.org/10.2139/ssrn.1272132

Guanming Shi (Contact Author)

University of Wisconsin - Madison ( email )

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Jean-Paul Chavas

University of Wisconsin ( email )

Taylor Hall
Madison, WI 53706
United States
(608) 261-1944 (Phone)
(608) 262-4376 (Fax)

Kyle W. Stiegert

University of Wisconsin ( email )

427 Lorch St.
Madison, WI 53706-1503
United States
608-217-5836 (Phone)
608-262-4376 (Fax)

HOME PAGE: http://www.aae.wisc.edu/fsrg

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