IMPACTS OF GENETICALLY MODIFIED (GM) TRAITS ON CONVENTIONAL TECHNOLOGIES

In hard red spring (HRS) wheat, the two GM traits nearest to commercialization are fusarium resistant wheat (FRW) from Syngenta and Roundup Ready® wheat (RRW). Monsanto announced that it has deferred the commercialization of RRW until issues of market acceptance are alleviated. Monsanto acknowledged that it might reconsider its position if another agbiotechnology firm enters the GM wheat market. A Cournot quantity competition model was developed to determine the equilibrium quantities of conventional pesticide and agbiotechnology firms. The Cournot model was used because firms that must make production decisions ahead of the selling period, and firms with extensive research and development costs are not able to aggressively set prices. Rather, the conventional and agbiotechnology firms determine Nash equilibrium quantities and then determine a market clearing price for their respective products. The agbiotechnology firm determined a profit maximizing technology fee ($/acre) for its GM trait. The market with conventional wheat only was compared to the market with conventional and GM wheat varieties to determine the price decreases of the conventional pesticide as a result of the GM trait introduction. Changes in farmer surplus, tech firm payoffs, and sector welfare were also analyzed. Using the actual number of firms with conventional herbicides labeled for use on HRS wheat in North Dakota and marginal production costs ranging from one to three dollars, introduction of RRW would cause a 20-25% price decrease for conventional herbicides. Similarly, four firms produce conventional fungicides labeled for the suppression of FHB in HRS wheat. This value, combined with per acre marginal production costs ranging from one to three dollars, would likely cause a 19-22% price decrease for conventional fungicides, post introduction of GM FRW. Several implications arise from these results. First, adoption of a new GM wheat variety may not be as high as expected due to likely concurrent price decreases of conventional pesticides. The price decrease leads to a lower production cost of conventional varieties, and some farmers who would likely adopt the GM variety, if there were no price decrease, do not adopt because of the lower cost of conventional production. This price decrease must be included in the determination of potential adoption rates by agbiotechnology firms in their pricing decisions. Second, the release of a GM wheat variety results in an increase in surplus for all types of wheat farmers (GM adopters, conventional pesticide adopters, and no technology adopters). GM adopters benefit because of the release of the GM variety. Conventional pesticide adopters benefit due to the price decreases of the conventional pesticides. Farmers who did not adopt any technology prior to the release of GM wheat may adopt the conventional pesticide because of the lower cost. Third, the release of a GM wheat variety would result in slightly lower payoffs for conventional pesticide producing firms but higher payoffs for agbiotechnology firms. Overall, surplus to farmers and conventional and agbiotechnology firms increases due to the release of a GM wheat variety.genetic modification, fusarium resistance, Roundup Ready®, technology, Crop Production/Industries, Research and Development/Tech Change/Emerging Technologies,

STRATEGIC ANALYSIS OF TRAIT COMMERCIALIZATION IN GENETICALLY MODIFIED (GM) GRAINS: THE CASE OF GM WHEAT

The prospective commercialization of GM traits leads to several strategic questions for agbiotechnology and seed firms. Important issues addressed in this study include the method of trait commercialization by agbiotechnology firms and variety production decisions by seed firms. Specifically, agbiotechnology firms must decide whether to license their traits to seed firms, to purchase a seed firm, or to not license or release their traits. These issues are highly strategic. The purpose of this study was to determine equilibrium strategies of agbiotechnology and seed firms regarding the prospective commercialization of two GM traits. Two game theory models were developed to examine equilibrium strategies in two different scenarios. In the first model, both agbiotechnology firms had commercialization strategies of licensing and not licensing. In the second model, the first moving agbiotechnology firm was allowed to have a strategic option to purchase a seed firm as a commercialization strategy. The second agbiotechnology firm remained with two strategies, licensing and not licensing. These models were applied to the case of Roundup Ready® (RR) and fusarium resistant (FR) HRS wheat, although the general structure of the models could be used to analyze other crops and traits. Studies on trait commercialization and stacking are lacking the public literature. This study uses game theory models to develop likely situations that may occur regarding the prospective commercialization of GM traits.genetically modified grains, wheat, Crop Production/Industries, Research and Development/Tech Change/Emerging Technologies,

IMPACTS OF GENETICALLY MODIFIED (GM) TRAITS ON CONVENTIONAL TECHNOLOGIES - SUMMARY

In hard red spring (HRS) wheat, the two GM traits nearest to commercialization are fusarium resistant wheat (FRW) from Syngenta and Roundup Ready® wheat (RRW). Monsanto announced that it has deferred the commercialization of RRW until issues of market acceptance are alleviated. Monsanto acknowledged that it might reconsider its position if another agbiotechnology firm enters the GM wheat market. A Cournot quantity competition model was developed to determine the equilibrium quantities of conventional pesticide and agbiotechnology firms. The Cournot model was used because firms that must make production decisions ahead of the selling period, and firms with extensive research and development costs are not able to aggressively set prices. Rather, the conventional and agbiotechnology firms determine Nash equilibrium quantities and then determine a market clearing price for their respective products. The agbiotechnology firm determined a profit maximizing technology fee ($/acre) for its GM trait. The market with conventional wheat only was compared to the market with conventional and GM wheat varieties to determine the price decreases of the conventional pesticide as a result of the GM trait introduction. Changes in farmer surplus, tech firm payoffs, and sector welfare were also analyzed. Using the actual number of firms with conventional herbicides labeled for use on HRS wheat in North Dakota and marginal production costs ranging from one to three dollars, introduction of RRW would cause a 20-25% price decrease for conventional herbicides. Similarly, four firms produce conventional fungicides labeled for the suppression of FHB in HRS wheat. This value, combined with per acre marginal production costs ranging from one to three dollars, would likely cause a 19-22% price decrease for conventional fungicides, post introduction of GM FRW. Several implications arise from these results. First, adoption of a new GM wheat variety may not be as high as expected due to likely concurrent price decreases of conventional pesticides. The price decrease leads to a lower production cost of conventional varieties, and some farmers who would likely adopt the GM variety, if there were no price decrease, do not adopt because of the lower cost of conventional production. This price decrease must be included in the determination of potential adoption rates by agbiotechnology firms in their pricing decisions. Second, the release of a GM wheat variety results in an increase in surplus for all types of wheat farmers (GM adopters, conventional pesticide adopters, and no technology adopters). GM adopters benefit because of the release of the GM variety. Conventional pesticide adopters benefit due to the price decreases of the conventional pesticides. Farmers who did not adopt any technology prior to the release of GM wheat may adopt the conventional pesticide because of the lower cost. Third, the release of a GM wheat variety would result in slightly lower payoffs for conventional pesticide producing firms but higher payoffs for agbiotechnology firms. Overall, surplus to farmers and conventional and agbiotechnology firms increases due to the release of a GM wheat variety

Producer Surplus Distributions in GM Crops: The Ignored Impacts of Roundup Ready Wheat

Release of a genetically modified (GM) crop variety would lower prices of competing pesticides used on conventional varieties. This causes an increase in surplus for those farmers who adopt the GM variety, as well as for those who plant the conventional variety. A Cournot model was developed to determine the equilibrium quantities of conventional pesticides. A market with conventional wheat was compared to a market with both conventional and GM wheat varieties to identify price decreases of the conventional pesticide as a result of the GM trait introduction

Trait Stacking, Licensing, and Seed Firm Acquisitions on Genetically Modified Grains: A Strategic Analysis

Commercialization of genetically modified (GM) traits leads to interesting strategic questions for agbiotechnology and seed firms. The purpose of the study is to evaluate equilibrium strategies of agbiotechnology and seed firms regarding commercialization of GM traits. Two game theory models were developed to examine equilibrium strategies. In the first, both agbiotechnology firms have commercialization strategies of licensing or not. In the second, the agbiotechnology firm also has the strategic option to purchase a seed form as a commercialization strategy. Results indicate that the equilibrium strategy would be for each of the agbiotechnology firms to license their traits, and the seed firm would release a stacked trait. However, order of play matters and impacts the equilibrium. Finally, in the second game, the equilibrium is for the agbiotechnology company to purchase a seed firm. Each of these decisions is highly strategic and reflects the current strategic challenges in the agbiotechnology industry

STRATEGIC ANALYSIS OF TRAIT COMMERCIALIZATION IN GENETICALLY MODIFIED (GM) GRAINS: THE CASE OF GM WHEAT

The prospective commercialization of GM traits leads to several strategic questions for agbiotechnology and seed firms. Important issues addressed in this study include the method of trait commercialization by agbiotechnology firms and variety production decisions by seed firms. Specifically, agbiotechnology firms must decide whether to license their traits to seed firms, to purchase a seed firm, or to not license or release their traits. These issues are highly strategic. The purpose of this study was to determine equilibrium strategies of agbiotechnology and seed firms regarding the prospective commercialization of two GM traits. Two game theory models were developed to examine equilibrium strategies in two different scenarios. In the first model, both agbiotechnology firms had commercialization strategies of licensing and not licensing. In the second model, the first moving agbiotechnology firm was allowed to have a strategic option to purchase a seed firm as a commercialization strategy. The second agbiotechnology firm remained with two strategies, licensing and not licensing. These models were applied to the case of Roundup Ready® (RR) and fusarium resistant (FR) HRS wheat, although the general structure of the models could be used to analyze other crops and traits. Studies on trait commercialization and stacking are lacking the public literature. This study uses game theory models to develop likely situations that may occur regarding the prospective commercialization of GM traits

IMPACTS OF GENETICALLY MODIFIED (GM) TRAITS ON CONVENTIONAL TECHNOLOGIES

In hard red spring (HRS) wheat, the two GM traits nearest to commercialization are fusarium resistant wheat (FRW) from Syngenta and Roundup Ready® wheat (RRW). Monsanto announced that it has deferred the commercialization of RRW until issues of market acceptance are alleviated. Monsanto acknowledged that it might reconsider its position if another agbiotechnology firm enters the GM wheat market. A Cournot quantity competition model was developed to determine the equilibrium quantities of conventional pesticide and agbiotechnology firms. The Cournot model was used because firms that must make production decisions ahead of the selling period, and firms with extensive research and development costs are not able to aggressively set prices. Rather, the conventional and agbiotechnology firms determine Nash equilibrium quantities and then determine a market clearing price for their respective products. The agbiotechnology firm determined a profit maximizing technology fee ($/acre) for its GM trait. The market with conventional wheat only was compared to the market with conventional and GM wheat varieties to determine the price decreases of the conventional pesticide as a result of the GM trait introduction. Changes in farmer surplus, tech firm payoffs, and sector welfare were also analyzed. Using the actual number of firms with conventional herbicides labeled for use on HRS wheat in North Dakota and marginal production costs ranging from one to three dollars, introduction of RRW would cause a 20-25% price decrease for conventional herbicides. Similarly, four firms produce conventional fungicides labeled for the suppression of FHB in HRS wheat. This value, combined with per acre marginal production costs ranging from one to three dollars, would likely cause a 19-22% price decrease for conventional fungicides, post introduction of GM FRW. Several implications arise from these results. First, adoption of a new GM wheat variety may not be as high as expected due to likely concurrent price decreases of conventional pesticides. The price decrease leads to a lower production cost of conventional varieties, and some farmers who would likely adopt the GM variety, if there were no price decrease, do not adopt because of the lower cost of conventional production. This price decrease must be included in the determination of potential adoption rates by agbiotechnology firms in their pricing decisions. Second, the release of a GM wheat variety results in an increase in surplus for all types of wheat farmers (GM adopters, conventional pesticide adopters, and no technology adopters). GM adopters benefit because of the release of the GM variety. Conventional pesticide adopters benefit due to the price decreases of the conventional pesticides. Farmers who did not adopt any technology prior to the release of GM wheat may adopt the conventional pesticide because of the lower cost. Third, the release of a GM wheat variety would result in slightly lower payoffs for conventional pesticide producing firms but higher payoffs for agbiotechnology firms. Overall, surplus to farmers and conventional and agbiotechnology firms increases due to the release of a GM wheat variety

Producer Surplus Distributions in GM Crops: The Ignored Impacts of Roundup Ready Wheat

Release of a genetically modified (GM) crop variety would lower prices of competing pesticides used on conventional varieties. This causes an increase in surplus for those farmers who adopt the GM variety, as well as for those who plant the conventional variety. A Cournot model was developed to determine the equilibrium quantities of conventional pesticides. A market with conventional wheat was compared to a market with both conventional and GM wheat varieties to identify price decreases of the conventional pesticide as a result of the GM trait introduction.genetically modified crops, Roundup Ready, wheat, Crop Production/Industries,

IMPACTS OF GENETICALLY MODIFIED (GM) TRAITS ON CONVENTIONAL TECHNOLOGIES - SUMMARY

In hard red spring (HRS) wheat, the two GM traits nearest to commercialization are fusarium resistant wheat (FRW) from Syngenta and Roundup Ready® wheat (RRW). Monsanto announced that it has deferred the commercialization of RRW until issues of market acceptance are alleviated. Monsanto acknowledged that it might reconsider its position if another agbiotechnology firm enters the GM wheat market. A Cournot quantity competition model was developed to determine the equilibrium quantities of conventional pesticide and agbiotechnology firms. The Cournot model was used because firms that must make production decisions ahead of the selling period, and firms with extensive research and development costs are not able to aggressively set prices. Rather, the conventional and agbiotechnology firms determine Nash equilibrium quantities and then determine a market clearing price for their respective products. The agbiotechnology firm determined a profit maximizing technology fee ($/acre) for its GM trait. The market with conventional wheat only was compared to the market with conventional and GM wheat varieties to determine the price decreases of the conventional pesticide as a result of the GM trait introduction. Changes in farmer surplus, tech firm payoffs, and sector welfare were also analyzed. Using the actual number of firms with conventional herbicides labeled for use on HRS wheat in North Dakota and marginal production costs ranging from one to three dollars, introduction of RRW would cause a 20-25% price decrease for conventional herbicides. Similarly, four firms produce conventional fungicides labeled for the suppression of FHB in HRS wheat. This value, combined with per acre marginal production costs ranging from one to three dollars, would likely cause a 19-22% price decrease for conventional fungicides, post introduction of GM FRW. Several implications arise from these results. First, adoption of a new GM wheat variety may not be as high as expected due to likely concurrent price decreases of conventional pesticides. The price decrease leads to a lower production cost of conventional varieties, and some farmers who would likely adopt the GM variety, if there were no price decrease, do not adopt because of the lower cost of conventional production. This price decrease must be included in the determination of potential adoption rates by agbiotechnology firms in their pricing decisions. Second, the release of a GM wheat variety results in an increase in surplus for all types of wheat farmers (GM adopters, conventional pesticide adopters, and no technology adopters). GM adopters benefit because of the release of the GM variety. Conventional pesticide adopters benefit due to the price decreases of the conventional pesticides. Farmers who did not adopt any technology prior to the release of GM wheat may adopt the conventional pesticide because of the lower cost. Third, the release of a GM wheat variety would result in slightly lower payoffs for conventional pesticide producing firms but higher payoffs for agbiotechnology firms. Overall, surplus to farmers and conventional and agbiotechnology firms increases due to the release of a GM wheat variety.genetic modification, fusarium resistance, Roundup Ready®, technology, Crop Production/Industries, Research and Development/Tech Change/Emerging Technologies,

Trait Stacking, Licensing, and Seed Firm Acquisitions on Genetically Modified Grains: A Strategic Analysis

Commercialization of genetically modified (GM) traits leads to interesting strategic questions for agbiotechnology and seed firms. The purpose of the study is to evaluate equilibrium strategies of agbiotechnology and seed firms regarding commercialization of GM traits. Two game theory models were developed to examine equilibrium strategies. In the first, both agbiotechnology firms have commercialization strategies of licensing or not. In the second, the agbiotechnology firm also has the strategic option to purchase a seed form as a commercialization strategy. Results indicate that the equilibrium strategy would be for each of the agbiotechnology firms to license their traits, and the seed firm would release a stacked trait. However, order of play matters and impacts the equilibrium. Finally, in the second game, the equilibrium is for the agbiotechnology company to purchase a seed firm. Each of these decisions is highly strategic and reflects the current strategic challenges in the agbiotechnology industry.Acquisition, Game theory, Genetically modified, Licensing, Trait commercialization, Trait stacking, Crop Production/Industries, Research and Development/Tech Change/Emerging Technologies,