Agricultural Economics Department

 

Date of this Version

Winter 1-2009

Comments

Published in AgBioForum, 11:2 (2008), 134-144. Copyright (c) 2008 AgBioForum. Used by permission. http://www.agbioforum.org/index.htm

Abstract

Crop traits are durable when embedded in varieties, and thus they may be subject to Coase's conjecture that monopolists who sell durables may be unable to earn normal monopoly rents, or in the extreme case, not any rents at all. To determine the potential relevance of this conjecture for the crop traits market, we analyze the theoretical time path of trait prices under three systems of intellectual property rights (utility patents, plant breeders' rights, and none), alternative assumptions about sellers' ability to commit to future action, and alternative assumptions that buyers are either myopic or far-sighted with respect to expectations about the future price of the durable. Under only one of these stylized circumstances does the Coase conjecture have traction, but it is a plausible circumstance in much of the world – owners with plant breeders' rights, buyers with foresight, sellers unable to commit to future price paths. In this circumstance, this theory suggests that sellers holding only plant breeders rights would realize only 11% of potential social welfare benefits from the trait, while farmers and/or downstream consumers would realize about 85%. On the other hand, with myopic buyers under any system of intellectual property rights, temporal price discrimination is feasible, resulting in above-normal monopolist welfare (about 70% of maximum social welfare benefits) and little damage to consumers relative to normal monopoly pricing.