Competition, price dispersion and capacity constraints: the case of the U.S. corn seed industry. (18th January 2021)

• Record Type: Journal Article
• Authors: Ilin, Cornelia; Shi, Guanming
• Is Part Of: European review of agricultural economics. Volume 49:Number 3(2022)
• Page Start: 557
• Page End: 592
• Publication Date: 2021-01-18
• Subjects: Market Structure -- Capacity Constraints -- Consumer Loyalty -- Price Dispersion; Agriculture -- Economic aspects -- Periodicals; Agriculture -- Economic aspects -- Europe -- Periodicals; 338.109405
• DOI: 10.1093/erae/jbab001
• Languages: English
• ISSNs: 0165-1587

Abstract

A bstract: In this paper we examine the effect of competition on price dispersion and argue that the effect is contingent on the ability of firms to meet market demand. Our comparative static results show that competition among symmetrically capacity-unconstrained firms, or among firms with asymmetric capacities leads to an overall price increase along the distribution function. To investigate these findings empirically, we use a novel data set from the U.S. corn seed industry with firm and farm level sales information for conventional and genetically modified corn seeds between 2004 and 2009. We estimate the empirical model using the Fixed Effect Instrumental Variable Quantile Regression and find evidence consistent with the theory. The analysis also shows that capacity-unconstrained seed firms charge a price premium, confirming the positive relationship between product availability and pricing found in our theoretical model.