Sequential Innovation and Hybrid Seed Pricing: The Lessons from Canola Industry in Canada

The present study attempts to fill a gap in the literature by exploring the physical and economic forces that influence the dynamic path of hybrid seed pricing for a broad acre crop over time. Of the physical and economic forces influencing the dynamic path of hybrid development, the sequential and cumulative nature of crop development is particularly discussed. Specifically, the canola hybrid seed industry in Canada is studied. This study will have particularly important implications for industries that are considering stronger intellectual property rights inside and outside Canada. The model presented in Chapter 2 makes a significant contribution to the “product variety” literature. While Chamberlinian models are confined to one representative consumer and location models are not very helpful in analysis of more than two characteristics, the model developed in Chapter 2 incorporates differentiated buyers and multiple characteristics. Schumpeter’s temporary market power can be derived from new characteristics embodied in old products. Results show that more progressive industries are likely to have a smaller equilibrium number of firms and shorter product cycles, ceteris paribus. Chapter 3 endogenizes rate of yield potential growth as a function of firms’ initial investment. Results show that greater investment productivity results in fewer varieties in the market, shorter product cycles, higher prices, higher profit levels, lower optimal investment, and higher consolidation. Also, it is shown that if increased differentiation creates enough space in the market for a new entrant, then entry of a new rival will increase competition and may result in a decrease in the incumbents’ profit. Chapter 4 uses data from Canadian canola industry to empirically test some of the propositions discussed in Chapter 2. Results confirm that as a variety becomes more specific its market share decreases. It is also shown that degree of specificity is a proper measure of adaptability for seed varieties as it provides high explanatory power in the regression models and also can be used to make direct economic interpretation. Chapter 5 presents a conclusion, policy implications, and potential approaches for future research