Anneke Gustafson, University of Nebraska-Lincoln
Amalia Yiannaka, University of Nebraska-Lincoln

The paper examines how the market/consumer acceptance of a second generation, consumer oriented, genetically modified product (new GMP) affects a company’s marketing strategy and its decision to invest in the research and development (R&D) of the new product. Two relationships between the products available in the market and their effect on the monopolist’s marketing strategy are considered, namely, vertical and horizontal product differentiation. Analytical results show that when the new GMP in a vertically differentiated market is viewed as the low quality product it has to be priced lower than the conventional product to capture a positive market share while when it is viewed as the high quality product, it may be able to capture the entire market. Results also show that the innovating firm may have to price the new GMP lower in the horizontally differentiated than in the vertically differentiated market in order to enhance its market share.

May 2007