The choice of GMVj or a generic GMV

Thus far, we have analyzed the area to be planted with GMVs in the four scenarios considered. However, a more fundamental question is whether to introduce a generic GMV at a given location or to modify the local varieties. The decision rule for a monopolist is different from that of a public sector entity, which introduces seeds to be distributed by competitive seed companies. We will solve the public sector case first and then consider the monopolist problem.

PM1?"(A'f j - MI^(A'"gj is greater than the extra variable cost. Thus,

Let 8J be an indicator variable that assumes the value 1 if option GMVj is selected and 0 otherwise. The indicator variable 8j assumes the value 1 if option GMV is selected and 0 otherwise. The public sector can either (a) modify variety j, (b) introduce a generic GMV, or (c) neither. The public sector aims to maximize net social welfare so its decision problem for region j will be

The public sector will select GMVj if net social benefits with this technology are positive and greater than NstPj. The generic GMV is chosen when it generates positive social surplus greater than Nsb".

From conditions (1) and (6), the public sector decision whether to introduce GMVj or a generic GMV hinges on three factors—revenue differential j\xf - Xf\ variable cost differential \VjAf~VgAf\ and fixed cost differential, F-. GMVj is selected when its extra revenues are greater than the extra variable and fixed cost that its introduction entails. When the production advantage of the local variety is not substantial or the breeding sector is not well developed (so Fj is high), the public sector will prefer to introduce a generic GMV to location j.

In cases where the monopolist controls the introduction of GMVs, let

8j and 8"' be defined similarly. The optimization problem becomes gm J J

The monopolist will elect to introduce GMVj if n'" > ngj and n"' > 0.

The generic variety will be introduced if nj > n'" and nj> 0.

A comparison of Eqs. (5) and (7) suggests that in determining whether to genetically modify the local variety or to introduce a generic GMV, the monopolist compares the likely extra revenues of GMVj with the extra fixed and variable cost its introduction entails. The generic GMV is likely to be introduced (a) in locations with small acreage, where volume of seed sales will not cover the extra cost of GMVp (b) in cases when the yield differences between the generic and local varieties are not substantial, and (c) when the variable and fixed costs of modification are substantial. The high fixed cost may reflect cost of access to local varieties or undeveloped local breeding sectors that make it worthwhile to import a generic GMV.

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