Competition, Externalities, and Input Substituting Technologies

The period 1997-2000 saw a rapid global consolidation of crop seed companies. The emerging companies are applying genetic engineering to exploit complementarities and substitutabilities between seed and other crop inputs. This article develops a model of competing technologies where one substitutes for a conventional input. A monopolist may cross-subsidize a technology that substitutes for an input in order to price discriminate between user types. In duopoly, a socially excessive or insufficient share of acres may be subject to an input substituting technology. Welfare improving regulations are identified in the case where a technology substitutes for an externality generating input.