Monopolistic Pricing Power for Transgenic Crops When Technology Adopters Face Irreversible Benefits and Costs

Posted: 15 Oct 2018

See all articles by Robert D. Weaver

Robert D. Weaver

Pennsylvania State University - Operations Research Faculty; College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology

Justus Wesseler

Agricultural Economics and Rural Policy Group, Wageningen University

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Date Written: September 17, 2004

Abstract

Pricing of biotechnology innovation under a patent grant is reconsidered in a model with uncertain returns and irreversible costs and benefits. Past results on restricted monopoly pricing in the presence of competing technologies showed that pricing power is reduced. The timing of adoption of an innovation is delayed and the pricing power of the restricted monopolist is further reduced when uncertainty and irreversibility is considered. The presence of irreversible benefits results in increased willingness-to-pay for the innovation, accelerating adoption, and increasing the innovator’s restricted monopolist pricing power. Using Monte-Carlo simulation, the quantitative effects were approximated by a linear function through the hyper-plane.

Keywords: technology adoption, real options, uncertainty, returns to patents

Suggested Citation

Weaver, Robert D. and Wesseler, Justus, Monopolistic Pricing Power for Transgenic Crops When Technology Adopters Face Irreversible Benefits and Costs (September 17, 2004). Applied Economics Letters, 2004, 11, 969–973. Available at SSRN: https://ssrn.com/abstract=3250944

Robert D. Weaver (Contact Author)

Pennsylvania State University - Operations Research Faculty ( email )

University Park, PA 16802
United States

College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology ( email )

University Park, PA 16802-3306
United States

HOME PAGE: http://globalvaluechains.aers.psu.edu/

Justus Wesseler

Agricultural Economics and Rural Policy Group, Wageningen University ( email )

Hollandseweg 1
Wageningen, 6706 KN
Netherlands

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