Abstract
Using data on field trial applications, we estimate the lower bounds to concentration in research and development (R&D) activity for genetically modified (GM) cotton and soybean seed markets in the U.S. We find that both crop types exhibit endogenous costs of entry, which implies that firms respond to increases in market size with escalations of R&D investment, so as to improve product quality rather than permit additional firm entry. The implications of these results are that as markets for GM crop varieties become large, market concentration ratios will remain bounded away from perfectly competitive levels. In subsequent analyses, we adjust the measures of R&D concentration according to merger and acquisition (M&A) activity. We find that accounting for M&A activity increases the fitted lower bound to R&D concentration in both GM cotton and soybean seed markets by increasing the observed levels of concentration in small- and medium-sized submarkets for both crops.
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Notes
For additional information with regard to the cluster analysis, please refer to the Online Appendix.
Although estimates of the adoption rates are available for a subsample of states only, the National Agricultural Statistics Service (NASS) reports that the sample states cover 87–90% of all soybean acres planted and 81–93% of all upland cotton acres planted. For states without an estimate for adoption rates, overall U.S. adoption estimates are used to compute the size of the GM market.
In a robustness check, we also consider the possibility that measurement error biases the results towards finding endogenous R&D investments by assuming perfectly homogeneous products.
A “scientist year” is defined as “work done by a person who has responsibility for designing, planning, administering (managing), and conducting: (a) Plant breeding research, (b) Germplasm enhancement, and (c) Cultivar development in one year (i.e., 2080 h).” We also consider a robustness check using the public sector cost per SY ($296,750) such that minimum entry costs are higher.
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Acknowledgements
This project was supported by the Agricultural Food Research Initiative of the National Institute of Food and Agriculture, USDA, Grant #2008-35400-18704. Previous versions of this article have been circulated with the title “R&D Concentration under Endogenous Fixed Costs: Evidence from the Agricultural Biotechnology Industry”.
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Anderson and Sheldon wrote the main manuscript text and reviewed the manuscript. Anderson prepared all figures and tables.
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Anderson, B.C., Sheldon, I.M. R&D Concentration in Soybean and Cotton Markets. Rev Ind Organ 64, 93–115 (2024). https://doi.org/10.1007/s11151-023-09937-7
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DOI: https://doi.org/10.1007/s11151-023-09937-7