Monopolistic markets for seeds of GM local varieties

Consider the case when GMVs are produced and marketed by a monopolist. The monopolist is assumed to have access to the traditional local varieties and to modify them. Let A"' denote the area of GMVj and let A2- denote total area (traditional and GM) of variety j. In this case the inverse demand function, denoting the maximum price (wj") farmers are willing to pay per acre for GMV seeds, as a function of acreage, is

The marginal revenue from the sale of seeds for A acres is

This inverse demand curve indicates that buyers will not be willing to pay more than (a) the difference between the marginal benefits per acre of GMVs and traditional varieties when both are viable (A < A°j) and (b) the difference between marginal benefits of land with GMV and marginal cost of land when only GMVs are economical.

The possible adoption patterns of GMV: under monopoly includes

• MJ2: Partial adoption if PMpJ(0)-PMp)(0)>Vj> MRJ()

In this case, Af<A°, at Af\ MRj(Af) -MR^Af) = Vj, =

• Mp: Full adoption if Mc. > Vj. At Af, MRJ [Af) =MCj + Vj.

The monopolist will sell the amount of seeds where its marginal revenue is equal to the variable per unit cost. When the marginal revenues intersect Vj at a quantity smaller than A® (case M'j'2), there will be partial adoption and when the marginal revenues intersect V; at a quantity greater than A®, there will be full adoption. It can be verified that (a) higher gains in marginal productivity (high PMp'"\J) -PMp'^Afj result in an increase in adoption of the GMV, and (b) adoption rates under monopoly are smaller than under competition. This is so because the monopoly price PMpJ^Aj2^ for GMVj will be greater than the competitive price, V-.

The profit of the monopolist, presented in Eq. (4), is smaller than the net social benefits considered by public sector decision makers when determining whether or not to assume the fixed cost of introducing a new variety. Thus, a monopoly outcome will provide a less-than-optimal introduction and adoption of GMVj. There may be cases when profit does not cover the fixed cost of modification. Then, a monopolist will not introduce GMVj, even though the net social benefits might be positive.

Fig. 14-2a denotes the monopoly outcome for the case of partial adoption. Curve ABC denotes demand for GMV seeds and has two segments—AB is PMp^ - PMp] and BC is PMp™ - McThe marginal revenues AE, associated with AB, intersect F- to establish AJ2 < Fig. 14-2b denotes the monopoly outcome for the case of full adoption. With the marginal benefits of using GMV, PMp™'s are much higher than those of the traditional variety. Demand for GMV seeds is represented by ABC, and the relevant marginal revenues are EF, which intersects with Vj at Af > ¿j.

The output of the industry in a monopoly situation is fj(Ai)

The price of seeds is equal to J^MPJ" (^f)-PMj^Af^-MCj- if MJ 3. Thus, taking into account the fixed cost i, net profit of the monopolist is m

Fig. 14-2a. Partial adoption

Fig. 14-2b. Full adoption

Aj2-Fj if Mf 2

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