Multimarket Exploitation: The Case of Biotechnology and Chemicals

Biotechnology enables rapid development of products with specific characteristics. We show that those who control the direction of biotechnology development influence the resulting industry structure. Through multimarket exploitation, chemical companies develop biotechnology that increases dependence on chemicals, whereas nonchemical companies tend toward development of biotechnology that substitutes for chemicals. Chemical companies tend to both underinvest and underproduce. Conversely, firms without vested chemical interests tend to overinvest and overproduce—even with monopoly‐enabling patents. Results show how the consequent industry structure can be affected by choice of agricultural policy.