Bundling and Licensing of Genes in Agricultural Biotechnology

We examine the strategic incentive for gene holders to vertically integrate with seed companies and chemical input companies. With homogeneous conventional seeds, we find that a pure bundling strategy (produce the genetically modified seed only) is dominant. When the gene holder and breeder are, respectively, the monopolistic producers of genetically modified and conventional seeds, they may commit to mixed bundling (supply both genetically modified and conventional seed) to deter potential entry to the conventional seed market. A vertical merger may solve the credibility issue of the mixed bundling commitment through third party licensing agreements in the conventional seed market.