Concentration, Market Power, and Cost Efficiency in the Corn Seed Industry
Jorge Fernandez-Cornejo
David Spielman
2002 Annual Meeting of the American Agricultural Economics Association
Long Beach, CA, July 28-31, 2002
April, 2002
Abstract. The paper presents a model developed to examine the effects of industry concentration
on market power and cost efficiency in the seed industry. In addition, the paper presents
preliminary measures of the relative strengths of these effects for the case of the U.S. corn seed
industry over the past 3 decades. The model uses conjectural elasticities and is estimated using
data collected from USDA sources. The empirical results allow us to distinguish between the
market power and cost effects of concentration, and to ascertain the tradeoff between the cost
efficiency and market power resulting from higher concentration in the corn seed industry.
Economic Research Service, USDA, 1800 M Street, NW, Room 4052, Washington DC, 20036,
phone 202-694-5537, jorgef@ers.usda.gov. Do not cite, reproduce, or distribute without
permission of the authors. The views expressed are those of the authors and do not necessarily
correspond to the views or policies of the U.S. Department of Agriculture.
1
Concentration, Market Power, and Cost Efficiency in the Corn Seed Industry*
The total market value of purchased seed in the U.S. has grown significantly over the past
decades. This growth is particularly rapid in the seed markets for major field crops – corn,
soybeans, wheat and cotton – where total U.S. market value increased from about $3.30 billion in
1982 to $4.70 billion by 1997. This market growth is the result of increases in the use of purchasd
seed, a trend which itself arises from seed productivity increases that are attributable to scientific
improvements in plant breeding over the past decades.
Since its inception, the corn seed market has been characterized by a combination of small
firms – 105 of the original 190 companies operati