| Structural and technical change in American agricultural input markets is redefining the relationship between input suppliers and farmers. With the advent of biotechnology, seed product cycles are shorter, increasing the influence of seed company information in farmers' production decisions. Concurrently, seed industry trends suggest that major seed companies are competing in providing information to farmers. This dissertation examines the seed company's incentives to supply accurate information on quality when introducing a new product.; First, I examine Iowa farmers' decisions to adopt GM corn and find that there were more influential information sources in 1997 than 1998. Input suppliers information was particularly important in 1997 for early adopters. In contrast, the 1998 adopters did not rely on seed company information.; Second, I develop a duopoly model where an incumbent firm and an entrant selling a seed of unknown quality compete in prices (Bertrand) over farmers who are heterogeneous in their beliefs about the reliability of information. Seed companies can provide information directly through test stations, and indirectly through early adopters.; When farmers discount all information, the two sources are strategic substitutes; when test stations are inexpensive, the new firm supplies more test station information, and when test stations are expensive, it uses penetration pricing to generate early adopter information. When farmers discount seed company information, the new firm sometimes treats the information sources as strategic substitutes and sometimes as complements (it offers more test station information to encourage early adoption).; Both firms benefit when the farmers believe the new seed is much better than the incumbent's because it reduces the intensity of price competition. If a seed performs poorly for early adopters, the new firm's profits increase as test station yields increase, giving it the incentive to advertise falsely. However, the new firm's incentives to advertise falsely are limited by farmers who distrust its information, test station costs, and alternative sources of reliable information. The presence of organizations that provide unbiased information gives firms the incentive to provide accurate new product information. |
