Is Monsanto Leaving Money on the Table? Monopoly Pricing and Bt Cotton Value with Heterogeneous Adopters

We examine the allocation of technology rents between a price-setting, innovating monopolist and heterogeneous technology adopters. A model of monopoly pricing in the presence of heterogeneous adopters is used to examine conditions under which greater producer (farmer) heterogeneity leads to greater producer benefit from innovation in non-competitive markets. An application to Bt cotton determines the profit-maximizing price of Bt cotton seed and reveals that Monsanto and Delta and Pine Land are indeed leaving money on the table in the form of unexploited profit opportunities. However, we estimate that the presence of heterogeneous adopters explains over 80% of the rents that accrue to the farmers.