The International Consortium on Agricultural Biotechnology Research (ICABR)

 

Property Rights and the Dynamics of Technology Pricing and Release a

Lilyan Fulginit,
Richard Perrin,
University of Nebraska,
Lincoln

It has been observed that royalties charged for herbicide-resistant soybean varieties are lower in Argentina than in the U. S. This pricing behavior is consistent with the results of several papers showing that the static equilibrium monopolist price should be lower when property rights are weak. But when property rights are weak in the sense that it is expensive to prevent farmers from re-planting seed in subsequent years, to the farmer the seed becomes a renewable asset instead of a current input, somewhat similar to a durable good. Pricing strategies for durable goods have been shown to have an important time dimension, and the dynamic pricing incentives may reverse the conclusion that prices should be lower under weak property rights.

This paper adapts the theory of dynamic pricing of durable goods to the case of renewable goods such as seeds. We incorporate a proxy variable for the strength of property rights: the inverse of the cost of excluding customers from re-using the good in future years. The results of the model indicate that as this property right approaches zero strength, the owner has an incentive to build inventory for a one-time harvest of rents from the renewable good, at a royalty price exceeding the optimal steady-state price of the identical good sold as a current input under costless enforcement of property rights.

These theoretical results imply that the time path of royalties (technology fees) charged for crop characteristics should differ depending on whether they are embodied in hybrids (corn) or varieties (soybeans), given the lower costs of enforcement for hybrids. We propose to examine the time paths of four different royalties for consistency with these predictions: herbicide resistant soybeans in both the U. S. and in Argentina, and Bt corn in both the U.S. and Argentina. The model predicts the flattest royalty trajectory for Bt corn in the US, the most peaked trajectory for herbicide-resistant soybeans in Argentina.


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