The groundswell of mergers and acquisitions in the plant biotechnology industry over the last decade has been driven by the research characteristics required to develop new biotechnology products and by the strong patent system of the U.S. Many scholars and researchers are concerned that the concentration of patents, plant germplasm, and markets for biotechnology among a few firms may be causing a decline in the level of research and innovation in the industry (Barton, 1998)1. In addition, the cost of obtaining permission to use patented technology or genetic material may prevent some firms, particularly smaller ones, from participating in innovative research.
The literature offers conflicting evidence about the impacts of firm concentration on research output. The purpose of this paper is to provide some insights into this issue by analyzing research output in the form of US field trials by private firms and merger activity over the last eleven years (1987-1988). Assessing impacts of mergers on the basis of innovation competition, as well as on product market competition, is being used more frequently by the FTC in recent antitrust rulings in merger cases (FTC, 1996)2. We examine the FTC’s use of innovation market analysis to account for the impact of mergers on research and development. Then an analysis of innovation concentration based on the Herfindahl-Hirschman Index is provided using USDA field trial data for private companies as a measure of innovation activities. Pre- and post-merger concentration ratios of the field trials are also examined to illustrate the movement currently taking place towards increased levels of concentration in innovation markets.
The results of the Herfindahl-Hirschman Index and Four Firm Ratio analyses show that there is evidence of firm concentration in innovation markets. Analysis of the impacts of this concentration reveal that new firm entry in the innovation market is starting to show evidence of a decline, research output by firms not in the top four also appears to be falling, and gains to efficiency appear to be negatively related to firm size. Investments and research output by the larger firms both appear to be increasing. However, there is not enough empirical evidence at this time to prove with confidence that industry concentration has had a negative impact on plant biotech research. Several more years of data will be required before any reliable conclusions can be stated. Given what appears to be the beginning of a trend towards negative impacts on innovation and competition, the FTC should continue to monitor field trials and other measures of research activity for signs that industry concentration may be having an adverse effect on research and development activities.
1. Barton, John. 1998. "The Impact of Contemporary Patent Law on Plant Biotechnology Research". In S.A. Eberhardt, H.L. Shands, W. Collins, & R.L. Lower (Eds.), Intellectual Property Rights III, Global Genetic Resources: Access and Property Rights. Madison, WI:CSSA.2. Federal Trade Commission. 1996. Anticipating the 21st Century: Competition in the New High-Tech Global Marketplace. Washington, D.C.